FASTWAY (HK) INVESTMENT LTD AND ANOTHER v. LEE KWOK WAI t/a WING BO MOTOR CO AND ANOTHER

HCMP 2851/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 2851 OF 2013

___________________

__________________

__________________

________________

DECISION
________________

1.  By way of a Summons dated 30 June 2015 (“Summons”), Fastway (HK) Investment Ltd (1^st plaintiff) and Cheung Cheung (2^nd plaintiff) (jointly “Plaintiffs”) apply to vary the costs order made by this court on 18 June 2015 so that the costs of the 1^st defendant’s (“Lee”) Summons dated 30 March 2015 (“Lee’s Application”) for interlocutory injunctive relief against the Plaintiffs “be paid by the Director of Legal Aid (“Director”) in any event”.

2.  The subject matter of these proceedings is a piece of land (“Land”).  The Plaintiffs are the paper title holders of the Land whilst Lee claims to be entitled to the Land by reason of his adverse possession. Lee’s Application was taken out for interlocutory injunctive orders restraining the Plaintiffs from interfering with his occupation of the Land and mandating the Plaintiffs to remove the fences erected thereat and to reinstate the partition boards which had been removed by them.  The application was declined by this court on 18 June 2015 with costs to the Plaintiffs.  It is this costs order (“Costs Order”) which the Plaintiffs now apply to vary.

3.  The present proceedings were initiated by way of an Originating Summons by the Plaintiffs against the “Occupiers of Premises” without naming specific persons or entities. 

4.  Later, by an Order dated 31 December 2013 these proceedings are treated as if having begun by Writ and Lee (who was granted legal aid on 1 August 2014) was added as the 1^st defendant whilst “All Other Occupier(s) of Premises” be treated as the 2^nd defendant. Directions were also given for the filing of pleadings.  However, no pleading has been filed to date.

The issues

5.  There are 2 issues arising from the Summons as follows :

(1) Whether the Director is liable to pay the costs of Lee’s Application in favour of the Plaintiffs; and

(2) Whether this court has jurisdiction to vary the Costs Order as requested by the Plaintiffs, namely, stipulating that the costs be paid by the Director in any event.

The law

6.  The Director’s liability for costs is governed by ss 19 and 16C of the Legal Aid Ordinance, Cap 91.

7.  Section 19(1) empowers the courts to make orders for costs in favour of or against legally-aided persons in the same manner and to the same extent as it may make such an order against any other persons “but such an order may only be enforced against the aided person and the Director to the extent permitted by section 16C”.

8.  Section 16C provides as follows :

“… the liability of an aided person and of the Director for costs shall be determined in the following manner –

…

(b) where a court … makes an order for costs against an aided person … in favour of a person not receiving legal aid –

(i) in any case in which the party not receiving legal aid is a defendant or respondent in the proceedings (other than a defendant … to a counterclaim …) … such costs shall be paid by the Director;

(ia) in any case in which the party not receiving legal aid is a defendant to a counterclaim …, the costs occasioned by the counterclaim … shall be paid by the Director;

…

(ii) in any other case, neither the Director nor the aided person shall be liable for such costs …”

9.  It has been held by the Court of Appeal in Common Luck Investment Ltd v Director of Legal Aid, CACV 375/2001, unrep, 4^th December 2001, §§ 13-14 that :

“The common feature is that liability falls on the Director when the aided person prosecutes unsuccessfully a claim, counterclaim or appeal. …

… The intent and spirit of the provisions in s 16C of the Ordinance … are that the Director will only be bound to pay the costs to the successful defendant where a legally-aided claimant is unsuccessful in his claim, because he has assisted the claimant to bring the claim which may not have been brought without the assistance that is made available from public funds.  The reverse is that the Director will not pay the costs of a successful unaided claimant awarded against an aided unsuccessful defendant because the claim was initiated by the claimant and thrust upon the defendant who had no choice but to defend and the Director was merely assisting the defendant in defending such a claim.  The fact that the aided litigant has been granted legal aid is indicative of his poor financial position so that there is little hope that his successful opponent will be able to recoup costs from him.  The liability of the Director to pay costs is thus an additional benefit to the unaided litigant conferred by statute and resort is made to public funds.  Such statutory provisions must therefore be strictly interpreted.”

10.  On appeal to the Court of Final Appeal (“CFA”) ((2002) 5 HKCFAR 467), it was held that there is nothing in the language of s 16C which suggests that the references to plaintiffs and defendants are implicitly to be qualified so as to read as references to “natural” plaintiffs and defendants.  “Expressions like “plaintiff” and “defendant” are well understood terms of art which appear without implicit qualification in statutes, rules, pleadings, judgments and court orders.” (see §24)

11.  Addressing the issue of form and substance, the CFA further held that :

“In many situations the law looks beyond form and at substance instead. That is done in order to arrive at reality. But in the present context, the reality is this. The obvious intention of s 16C is to provide a code by which a non-aided person’s costs entitlement against the Director can be seen from the face of the court’s order. This avoids disputes which might even result in further litigation. And it necessarily involves going by the parties’ formal designation. In the vast majority of cases, form will naturally follow substance when it comes to who is the plaintiff and who is the defendant. The risk of a mismatch between substance and form in that regard can arise in a case like the present. I mean proceedings not begun by writ which are ordered to continue as if begun by writ, and in which directions are made as to who is to be the plaintiff and who is to be the defendant. But that risk can be catered for – and I dare say will in future be catered for – by submissions with an eye to s 16C’s implications.” (see §25)

Analysis

12.  The Plaintiffs contend that Lee’s Application was premised upon a counterclaim of adverse possession.  Notwithstanding that pleadings have yet to be filed by either parties, the Plaintiffs argue that in opposing Lee’s Application they became the defendants to a counterclaim under s 16C(1)(b)(ia).

13.  This court has a good deal of sympathy to the Plaintiffs’ present application.  Lee’s Application was found to be unmeritorious, having failed at the first hurdle of identifying the land which he says has been in his adverse possession (see decision dated 18 June 2015). 

14.  On the other hand, the Plaintiffs are at least partly to blame for the lack of pleadings in breach of the order dated 31 December 2013 (see para 4 above).  I have little doubt that the Plaintiffs are right that had pleadings been filed, there would have been a counterclaim by Lee for a declaration of possessory title over the Land in his favour.  Indeed, I agree with the submission that Lee’s Application was premised upon such a claim (or cause of action) even though it had not been formally made. 

15.  The court normally favours substance over form because, more often than not, the former better reflects the merits of the case.  However, this court is bound by the higher court decisions in Common Luck Investment Ltd.  The statutory provisions in question are to be strictly construed, and substance is not to prevail.  In fairness, it has to be said that, as pointed out by the CFA (see para 11 above), potential unfairness to an unaided litigant can be mitigated by keeping an eye to s 16C’s implications. 

16.  I am unable to see in the present circumstances how the Plaintiffs can bring themselves within s 16C(1)(b)(ia) in the absence of any counterclaim having been filed.

17.  Ms Wong, who appears for Lee, has referred the court to Hong Kong Civil Procedure 2016, rubric 15/2/3 :

“The right of action by way of counterclaim can only be exercised by the service of a pleading embodying the counterclaim or of some document which the court orders to stand as a pleading, since a counterclaim is not made by referring to facts, alleged to constitute such a counterclaim, in an affidavit filed in opposition to an application for summary judgment under O.14 (Impex Transport Aktieselskabet v AG Thames Holdings Ltd [1981] 1 WLR 1547 …). A counterclaim is made when it is properly formulated and pleaded and, when made, it must be added to the defence ….”

18.  This authority fortifies the view taken by this court that the Plaintiffs are not in a position to invoke s 16C(1)(b)(ia).

19.  Ms Lan, who appears for the Plaintiffs, relies upon Fakih Bros v Moller [1994] 1 Lloyd’s Rep 103 and an interpretation of that authority in Hong Kong Civil Procedure 2016, rubric 15/2/3 as follows :

“A Mareva injunction was held to be the ‘making’ of a counterclaim in Fakih Brothers v Moller (Copenhagen) [1994] 1 Lloyd’s Rep. 103. Hobhouse J ruled it would not have been proper to grant defendants this relief except on the basis that a counterclaim was being made.”

20.  The relevant part of the dicta in Fakih Bros is as follows :

“… I need only shortly refer to the argument on the question of when a counterclaim can be said to have been made for the purposes of O 15, r 2. I have been referred to a number of cases … None of those cases was concerned with the question raised by the present case – an injunction in support of and referring to a counterclaim being granted in advance of the service of a defence and counterclaim.

  Here, it would not have been proper to grant a Mareva injunction at all to the defendants except on the basis that a counterclaim was being made in the action.  Mr Justice Waller could have required the service of a counterclaim forthwith; instead he took an undertaking that the points of defence and counterclaim would be served within seven days.  It may well be that where such an order is made by the Court this creates a third exception to the requirement that a pleading must actually be served before it can be said that a counterclaim has been made in the action.  Where a Mareva is granted to a plaintiff on an undertaking to issue and serve a writ, there is inevitably an interval of time before the writ is actually issued, maybe as long as over a bank holiday weekend.  In the present case, the order of Mr Justice Waller followed a similar logic… .”

21.  It can be seen from the above dicta that:

(i) a Mareva injunction has to grounded on a claim or a counterclaim; and

(ii) granting an injunction on the basis of an undertaking to serve a counterclaim may well constitute an exception to O 15, r 2, which governs the making of a counterclaim.

22.  However, I am unable to see that the court in Fakih Bros was treating or equating the injunction application as a counterclaim.  Further, the present exercise is to apply s 16C, which has been construed by the higher courts in Common Luck Investment Ltd.  Therefore, I am unable to derive much assistance from Fakih Bros for the present purpose.

23.  The heart of Ms Lan’s argument is Lee’s Application falls within a “counterclaim” for purpose of s 16C(1)(b)(ia).  I am unable to agree.  Although the point did not arise in Common Luck Investment Ltd, the reasoning of the CFA, namely, the strict interpretation and adherence to form, militates against the argument.  Further, it was held by the CFA that the intention of s 16C was to provide a restrictive and clear code on the costs entitlement against the Director (to be met out of the public purse) so that further disputes can be avoided (see para 11 above).  To entertain an argument whether an interlocutory application is or is not a counterclaim would encourage further disputes, and is therefore contrary to the intention behind s 16C.

24.  I must also reject the alternative argument of the Plaintiffs, which relies upon s 16(1)(b)(i), ie, Lee should be regarded as the plaintiff in Lee’s Application.  Such argument is equally defeated by the strict interpretation of the statutory provisions and the adherence to form.

25.  Finally, on the jurisdictional issue, Ms Wong’s submission is that by reason of the stipulation in s 16C that, where the conditions are met, “such costs shall be paid by the Director”, it is unnecessary for the unaided successful party to make an application to the court in respect of his costs entitlement.  In other words, his entitlement must follow once the conditions under, eg, s 16C(1)(b)(ia) are met. 

26.  This court agrees with Ms Wong’s submission.  On the other hand, I do not see this as a jurisdictional issue.  There is no reason why an unaided successful party cannot come to court with an application (with the attendant risk as to costs) to clarify whether he is or is not entitled to have his costs paid by the Director.  An unnecessary application will normally be met with an adverse costs order. 

Conclusions

27.  For the above reasons, I dismiss the Summons with costs in favour of Lee (there is no dispute that the costs should follow the event). 

28.  Lastly, I am grateful to counsel for their able assistance.