LEUNG KWAI YING v. LUK MAN YEUNG

DCCJ 1104/2013

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 1104 OF 2013

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REASONS FOR DECISION

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The pre-trial review hearing

1.  This is the pre-trial review hearing of the captioned proceedings scheduled to be heard on 10 – 13 November 2015 with 4 days reserved.

Defendant’s application

2.  There are 3 applications before this court.  By summonses (“Summonses”) dated 14 September 2015, the defendant seeks:-

(a) Leave to file a supplemental witness statement of the defendant (“WS Application”);

(b) Leave to restore the defendant’s counterclaim which was struck out by the order of Master S P Yip dated 12 March 2015 (“Restoration Application”); and

(c) Leave to amend the defence and counterclaim as per the draft attached to the Summonses (“Amendment Application”).

3.  In view of the fact that the trial of this action was coming up shortly, I gave my rulings and directions on the day of the hearing on 17 September 2015.  I now give my reasons.

Background

4.  The present proceedings arose out of possession proceedings leading to the parties’ dispute in respect of the beneficial ownership to the property situate at 6^th Floor, No 11B, Boundary Street, Kowloon (“Premises”).

5.  At all material times, the Premises is and was registered in the sole name of the plaintiff, namely, Madam Leung Kwai Ying.

6.  Since acquiring the Premises on 3 March 1986, the plaintiff had resided therein for 25 years as her permanent home until she was allegedly forced to leave her home by her eldest son, Mr Luk Man Yeung, ie the defendant, in or around 23 March 2011.

7.  The plaintiff claims that she is the lawful and beneficial owner of the Premises and asks for, inter alia, an order for possession to the same.

8.  The defendant contends that the plaintiff is only a nominee holding the Premises on trust for him as he had allegedly provided for the down payment and mortgage instalments for the Premises and is therefore, the beneficial owner of the same.

9.  Prior to the acquisition of the Premises, on or around 22 January 1983, the plaintiff’s second son Mr Luk Man Yeung (“2^nd son”) purchased in his sole name a property at Flat A, 5^th floor and roof, Peace Building, Nos 52 & 54 Yen Chow Street, Kowloon (“Yen Chow Street Flat”) at a consideration of HK$192,000.00.  Thereafter, the plaintiff and her children including the defendant moved in and resided at the Yen Chow Street Flat.

10.  According to the plaintiff, about 3 years later, on 3 March 1986, the plaintiff acquired in her sole name the Premises at a consideration of HK$185,000.00 by way of:-

(a) A down payment (“down payment”) of HK$85,000.00 was first paid by the plaintiff.

(b) The balance of the purchase price – HK$100,000.00 was further settled by the plaintiff obtaining a mortgage from Hang Seng Bank (“mortgage”) dated 3 March 1986.

11.  At the time of the purchase of the Premises, according to the plaintiff, it was orally agreed amongst the plaintiff, the defendant and the 2^nd son that:-

(a) The Premises shall be bought in the name of the plaintiff so that she would remain as the sole beneficial owner.

(b) In respect of the down payment in the sum of HK$85,000.00:-

(i) The defendant would advance a sum of HK$80,000.00 to the plaintiff which shall be treated a lump-sum advance payment of living expenses by the defendant to the plaintiff.  Because of this lump-sum advance payment, the defendant was not obliged to pay for and contribute to the household or the living expenses of the plaintiff anymore.

(ii) The plaintiff and the 2^nd son would pay for the remaining HK$5,000.00, legal costs and other expenses of the purchase.

(c)  As for the balance of the purchase price, the plaintiff would have to obtain a mortgage from the bank.

(d) Since the Yen Chow Street Flat was the property of the 2^nd son, and the defendant wanted to reside there with his wife, the parties agreed that instead of paying rents directly by the defendant to the 2^nd son, the defendant was required to pay the instalments of the mortgage – which was to be treated as rental payments to the 2^nd son for residing in his property, the Yen Chow Street Flat.

12.  In around July 1986, the plaintiff and her other children moved in to live at the Premises.  The defendant who was about to get married stayed behind at the Yen Chow Street Flat, ie the property of the 2^nd son.

13.  In or around November 1986, the defendant got married and continued to live with his wife at the Yen Chow Street Flat.

14.  On 9 August 1988, the 2^nd son sold the Yen Chow Street Flat, whereupon the defendant and his wife moved out to the wife’s parental flat.

15.  On 21 December 1988, the 2^nd son, according to the plaintiff, redeemed the mortgage of the subject Premises on behalf of the plaintiff by using his own money.

16.  Since 1990s, the plaintiff’s children started moving out from the Premises as they grew up into adults.  In about 1994, the defendant moved into the Premises to live with the plaintiff since then.  In 2009, the parties’ relationship, according to the plaintiff, started to deteriorate as the defendant proposed to sell the Premises with the proceeds to be split between the 8 children of the plaintiff only.  Suffice to say that there is much dispute as to the subsequent events.  On 8 March 2011, the plaintiff temporarily moved out from the Premises.

The WS Application

Applicable legal principles

17.  Order 2 rule 4 of the Rules of District Court provides that “Where a party has failed to comply with a rule or court order, any sanction for failure to comply imposed by the rule or court order has effect unless the party in default applies to the court for and obtains relief from the sanction within 14 days of the failure.”

18.  In Daimler AG v Leiduck, Herbert Heinz Horst & Anor, CACV172/2011, the Court of Appeal (Fok and Chu JJA) at §§47-48 accepted as an accurate summary of the effect of Order 2 rules 4 and 5 that:-

“It is not for the party seeking to take advantage of a default to apply to the court in order to render a sanction for that default effective. Instead, the sanction takes effect immediately and it is for the party in default to apply for relief from the sanction. Only if there is an application for relief from the sanction is the court required to consider whether, in all the circumstances, it is just to make an order granting relief from the consequences that would otherwise follow.”

19.  Under Order 2 rule 5, the application for relief under sanction must be supported by evidence.  The court will determine the application in light of the factors set out in Order 2 rule 5(1)(a)-(j).  But the list of factors are not intended to be exhaustive.  The court shall consider all the circumstances including:-

(a) the interest of the administration of justice;

(b) whether the application for relief has been made promptly;

(c) whether the failure to comply was intentional;

(d) whether there is a good explanation for the failure to comply;

(e) the extent to which the party in default has complied with other rules and court orders;

(f) whether the failure to comply was caused by the party in default or his legal representative;

(g) in the case where the party in default is not legally represented, whether he was unaware of the rule or court order, or if he was aware of it, whether he was able to comply with it without legal assistance;

(h) whether the trial date or the likely trial date can still be met if relief is granted;

(i) the effect which the failure to comply had on each party; and

(j) the effect which the granting of relief would have on each party.

20.  In applying the factors listed under Order 2 rule 5, the court will take into account all the circumstances of the case.  The test is no longer restricted to considering whether the non-compliance is “intentional or contumelious”.  ‘Failure to comply with an order through negligence, incompetence or sheer indolence may lead the court to conclude that relief from sanction should not be granted’: Top One International (China) Property Group Co Ltd v Top One Property Group Ltd [2011] 1 HKLRD 606, at §41, per Fok J; followed by An Zhou v Zhou Zheng Kuan, HCA 241/2010, at §§25-27, per To J.  To J’s decision was upheld by the Court of Appeal on appeal: An Zhou v Zhou Zheng Kuan, CACV 193/2012.

21.  At §§32-41 of the judgment in Top One International, Fok J considered the relevant authorities pre and post CJR and concluded that the correct approach to be adopted was as follow:-

“38. There is now a trend towards the greater use of orders to specify automatic consequences of non-compliance and for placing the onus on a party guilty of non-compliance to seek relief from those consequences. The rules themselves reflect this trend: see, for example, RHC O 25 r 1C (failure to appear at case management conference or pre-trial review).

39. To this end RHC O 2 r 4 now specifies that where a party has failed to comply with a rule or court order, any sanction for failure to comply imposed by the rule or order has effect unless the party in default applies to court for relief from the sanction within 14 days of the failure. Relief is not automatic and RHC O 2 r 5 specifies the circumstances which the court shall consider on an application for such relief.

40. …although intentional and contumelious disregard of a court’s peremptory order may be the most usual circumstance leading to the refusal of an extension of time to comply with a peremptory order, the exercise of the discretion to refuse an extension or to relieve a party from sanctions is not limited to cases of intentional and contumelious default.  As directed by RHC O 2 r 5, the court should consider all the individual circumstances including those listed in r 5(1) at sub-paragraphs (a) to (j).  Depending on the circumstances, failure to comply with one or a number of orders through negligence, incompetence or sheer indolence may be such as to lead the court to conclude there is existence and degree of fault which warrants a refusal of an extension of time, so that relief from sanction for non-compliance specified in a peremptory order (including an order striking out a pleading) should not be granted.  Any other conclusion would, in my opinion, be to ignore the positive duty placed on parties to assist the court to further the underlying objectives of CJR (RHC O 1A r 3) and on the court to do so by actively managing cases (RHC O 1A r  4(1)).”

22.  By Master Yip’s unless order dated 11 December 2014, the defendant would be debarred from making application to adduce supplemental witness statement unless it was done by 4 pm on 31 December 2014.  There was no such application.

23.  Accordingly, the sanction under the unless order takes effect automatically and the onus is on the defendant to apply for relief from sanctions within 14 days of the breach of the order: see Order 2 rules 4-5; Top One International at §39, per Fok J.  It is not in dispute that again the defendant’s solicitors failed to comply within 14-day time limit imposed by Order 2 rule 5 to apply for relief from sanctions under the unless order of Master Yip.  Since the expiry of the 14-day time limit on 14 January 2015, for almost 9 months, the defendant’s solicitors took no steps to apply for relief from sanction.

24.  Further, in breach of Order 2 rule 5(2), the defendant failed to file any evidence for the application for relief from sanctions.  The defendant has never provided any explanation for the 9-month delay in taking out the WS Application. 

25.  I agree that the application has not been made “promptly” and no “good explanation” for failure to comply was given.  Even though the failure to comply with the unless order may be due to the fault of defendant’s legal representatives, the defendant’s solicitors at the time, Messrs. Alan Ho & Co, provided no explanation for its failure to apply for relief within 14 days and the 9-month delay before the WS Application is now made. 

26.  The supplemental witness statement which the defendant now wishes to adduce consists of 17 pages and various new matters raised for the first time.  No doubt, the plaintiff’s witnesses would require time to respond substantively to the new allegations of the defendant directed at both of them.  The plaintiff herself is an elderly witness aged 85. It is likely that further time may be required for her to recall matters dating back to the 1980s.  I agree that the trial dates scheduled in less than 8 weeks’ time are likely to be jeopardized.

27.  I have taken into account all the circumstances in the present case and I have no hesitation in dismissing the WS Application.

The Restoration Application

28.  Pursuant to Master Yip’s order dated 12 March 2015, the defendant’s counterclaim was ordered to be struck out due to the defendant’s failure to attend the case management conference (“CMC”) on 12 March 2015 under Order 25 rule 4.  Under Master Yip’s said order, the defendant shall write to the court within 3 days from the date of the service of the order to explain their absence for the CMC hearing on 12 March 2015. The said order was served on the defendant’s then solicitors, Messrs Alan Ho & Co, on 24 March 2015.  The defendant’s then solicitors failed to write to court within 3 days to explain their absence for the CMC.

29.  Order 25 rule 3 provides that any application to restore the counterclaim shall be made before the expiry of 3 months from the date of the relevant CMC.  No such application was made by the defendant.  The Restoration Application now pursued by the defendant was not taken out until 14 September 2015.

Jurisdiction

30.  In respect of the court’s jurisdiction to allow the restoration of the defendant’s counterclaim after the expiration of the 3 months’ time limit, I was referred by the counsel for the defendant, Mr Vaughan, to the decision of the Acting Chief District Judge (as he then was) ST Poon in Chau Ming Shuen v Moretide Investments Limited trading as Kai Bo Frozen Meat Supermarket and Kai Bo Food Supermarket DCEC 624/2010 where he held that the court would still have power to allow the restoration notwithstanding the expiry of the 3 months as provided under Order 25 rule  3.  HHJ Poon cited, as an illustration, an example where one of the parties was not properly notified of the CMC hearing and failed to appear and his claim was provisionally struck out as a result; in such scenario it would be obviously unfair if the only channel available to that party was to lodge an appeal against the decision.  Both Mr Leung, counsel for the plaintiff, and Mr Vaughan, counsel for the defendant, agreed that I still have the power to do so.  Having considered HHJ Poon’s decision in Chau Ming Shuen, I accept that I still have the power and shall proceed to deal with the Restoration Application.

Relevant authorities

31.  As succinctly summarized by Registrar Au-Yeung (as she then was) in World Chinese Business Investment Foundation Ltd v Shine Rainbow Marketing Ltd, HCA 2547/2007 (12 February 2010) at §§7-8, in an application to restore a claim or counterclaim struck out by the court under Order 25, the court will consider the following matters:-

(1) “The general theme derived from these rules [under Order 25] is that the Court will not lightly accede to the request of a defaulting party to restore an action without sufficient explanation and consideration of the merits.”

(2) “This is to maintain the integrity of the timetable laid down by the Court or the rules and to ensure that a matter without merits should not continue to haunt an innocent party.”

(3) “It is thus clear that under rule 1C(4) and (5), a plaintiff should first meet the threshold of showing “good reasons” in stage 1 and then the Court will consider whether, as a matter of discretion, it should grant the restoration in stage 2.  If it decides to restore the Claim, the Court may consider conditions to be imposed in Stage 3.”

32.  The plaintiff submits that the Restoration Application should be dismissed for the following reasons:-

(A) First, “no good reasons” have been provided by defendant or its solicitors to explain their absence at the CMC on 12 March 2015:-

(1) The Affirmation of Ho Pak Wah filed in support of the Restoration Application comprises 7 short paragraphs.  There, Mr Ho affirmed that:-

(a) In the first quarter of 2015, his firm underwent a “restructure” and his staff misplaced the file of this case and as such, they failed to attend the CMC on 12 March 2015.

(b) Again, “due to their inadvertence”, their firm did not receive a copy of the order served by plaintiff on defendant.

(c) After the restructure of the firm was completed, they conducted a search and found out the order of Master Yip made on 12 March 2015.

(2) The “explanations” given by Mr Ho are vague, embarrassing and unparticularised and in fact, incredible.

(3) There are no particulars whatsoever as to what kind of “structure” that the firm was undergoing.  Mr Ho did not even provide the completion date of such restructure.

(4) When he said that “due to their inadvertence” that their firm did not receive the order of Master Yip served on them by plaintiff’s solicitors, Mr Ho’s assertion is directly refuted by the receipt chop of his firm acknowledging the service of Master Yip’s order on them by plaintiff’s solicitors on 24 March 2015.

(5) Notwithstanding the valid service of the said Order on defendant’s solicitors on 24 March 2015, Mr Ho provided no explanation as to why his firm did not write back to the court within 3 days of service to explain their absence at the CMC on 12 March 2015.

(6) Further, Mr Ho’s evidence is that the so-called “restructure” of his firm only took place in the 1^st quarter of 2015.  It follows that there is no plausible explanation as to why nothing has been done on their part to restore the counterclaim in the 2^nd quarter of 2015 given that the order was served on Mr Ho’s firm on 24 March 2015.

(7) Mr Ho’s evidence is extremely vague as to the time when his firm first found out the order of Master Yip. Throughout his entire affirmation, Mr Ho shunned from providing the court with the exact point in time which his firm first found out and discovered the order of Master Yip.  The only inference is that the order was validly served on his firm on 24 March 2015 and yet his firm took no steps to restore the counterclaim or explain to the court their absence at the CMC.

(B) “A PTR is not an extension of the CMC”.  “The court will expect a case to be ready for trial.”  “Late interlocutory applications may be dismissed on the basis of delay alone and that change of legal team will not be treated as exceptional circumstances to justify delay in taking out interlocutory applications: see HKCP 2015 (Vol 1) at p 605 §25/1A/13.

33.  I totally agree that there is a complete absence of explanation by the defendant’s former solicitors to explain the inaction since 24 March 2015 and I also agree that the fact that the defendant has now instructed new legal representatives cannot be regarded as “good reasons” or “exceptional circumstances” to justify the delay in applying to restore the counterclaim struck out as early as in March 2015, more than 6 months before this pre-trial review.

34.  There is, however, no dispute that the defendant’s counterclaim raises the same issues as his defence in this case and he seeks a declaration that he is the beneficial owner of the Premises. Even after his counterclaim was struck out, the relevant issues remain and need to be resolved at the trial of this action.  It appears to me that in the absence of the defendant’s counterclaim, the court would not be able to dispose of all the issues of the parties in the event that the defendant was successful in his defence at the trial.  His counterclaim for a declaration could not be dealt with because his counterclaim had been struck out.  Although there is nothing to prevent the defendant from taking out another set of proceedings in order to enforce the judgment in his favour, more time and costs would be necessitated.

35.  On the other hand, if I were to allow the restoration of the defendant’s counterclaim, I would also need to consider the effect on the plaintiff.  Mr Leung, for the plaintiff, accepts that the defendant’s counterclaim raises the same issues as his defence, the same issues would have to be dealt with at the trial with or without the counterclaim.  Mr Leung agreed that if the defendant’s counterclaim were to be restored, it would not cause any real prejudice to the plaintiff but he urged upon the court that the defendant’s non-compliance with the rules should not be condoned.  I totally agree with Mr Leung that the explanations put forward by the defendant’s former solicitor Mr Ho Pak Wa of Messrs Alan Ho & Co are not good reasons.  Even accepting that they had misplaced the relevant file during their so-called restructure of their firm, the order of Master SP Yip was served on Messrs Alan Ho & Co and received by them on 24 March 2015. There is no explanation given by Mr Ho in this regard.

36.  I would have dismissed the defendant’s Restoration Application but for the special facts of this case where the court might not be able to dispose of all the issues at the trial in the absence of the defendant’s counterclaim.  It appears that it will not be conducive to the administration of justice to bar the defendant from maintaining his counterclaim in the present case.  By refusing to restore the defendant’s counterclaim may create more technical obstacles to the just and speedy resolution of the disputes between the parties.  It is only in such circumstances that I exercise my discretion to allow the restoration of the defendant’s counterclaim.

37.  Although, the defendant succeeded in his application, there is no reason why the defendant should not be made to pay the costs of his application to the plaintiff in the circumstances of the present case and I shall so order.  I also make an order that the plaintiff’s costs of the counterclaim up to the date of my order on 17 September 2015 be borne by the defendant in any event and Master SP Yip’s order dated 12 March 2015 is accordingly varied.

38.  As regards the defendant’s proposed amendments, Mr Leung for the plaintiff, indicated that the plaintiff had no objection but would ask for 14 days to reply.

Directions and orders

39.  In respect of other proposed directions, the parties are in agreement, I shall set out my order made on 17 September 2015 as follows:-

(1) The defendant’s application for leave to file his supplemental witness statement is dismissed with costs to the plaintiff with certificate for counsel to be taxed if not agreed;

(2) The defendant’s application to restore his counterclaim be allowed with costs to the plaintiff with certificate for counsel to be taxed if not agreed;

(3) Leave to the defendant to file his amended defence and amended counterclaim within 3 days from the date hereof;

(4) Leave to the plaintiff to file and serve her amended reply and defence to counterclaim within 14 days thereafter;

(5) Costs of and occasioned by the defendant’s amendment be to the plaintiff to be taxed if not agreed;

(6) The plaintiff do lodge into court and serve on the defendant the trial bundles 7 days before the commencement of the trial;

(7) The plaintiff do file and serve its written opening submission 5 days before the commencement of the trial;

(8) The defendant do file and serve its written opening submission 3 days before the commencement of the trial;

(9) Costs of the pre-trial review hearing be in the cause;

(10) There be legal aid taxation for both the plaintiff and the defendant’s own costs for both summonses and for the pre-trial review hearing; and

(11) The plaintiff’s costs of the counterclaim up to the date hereof be borne by the defendant in any event.