SPEEDY FINANCE LTD v. ZHANG XIAOPING

HCMP 222/2019

[2021] HKCFI 713

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 222 OF 2019

________________________

________________________

________________________

________________________

DECISION

________________________

1.  By the order of Master SP Yip dated 18 October 2019, it is ordered that the following issues be determined by a judge for further directions:

(1)  whether the counterclaim raised by the defendant (“D”) herein be struck out under Order 28 rule 7(2); and

(2)  further conduct of these proceedings under Order 28 rule 4 or Order 28 rule 8.

2.  By the Order of DHCJ To dated 11 November 2020, it is ordered that the aforesaid matters be determined on paper.  Both the plaintiff (“P”) and D have provided the court their respective written submissions, and I have considered the same.  This is my decision on the matters specified in the master’s order made on 18 October 2019.

Background

3.  P’s case is as follows:

(1)  P is a licensed money lender.  On 9 October 2017, P and D entered into a loan agreement (“the 1^st Loan Agreement”), pursuant to which P provided a loan of HK$22 million to D at the interest rate of 12% per annum.  The loan was secured by a legal charge against a property (“the Property”).  D was required to repay the loan and interest after one year, but she failed to do so.

(2)  After some discussion, P and D reached a second loan agreement on 18 October 2018 (“the 2^nd Loan Agreement”), by which P agreed to extend the time for repayment to 8 January 2019, and the interest rate was enhanced to 14% per annum.  However, D still failed to repay the loan and interest by the deadline.

(3)  P therefore commenced these proceedings on 19 February 2019 to claim for the repayment of the loan and the interest, and for possession of the Property.

4.  D made the following allegations:

(1)  She was induced by some misrepresentations made by a Rick Wat (who was P’s agent), and in reliance of those misrepresentations, D entered into the 1^st Loan Agreement.

(2)  She entered into the 2^nd Loan Agreement as a result of the economic duress exerted by P on her.

(3)  Both the 1^st Loan Agreement and the 2^nd Loan Agreement are exorbitant transactions and are liable to be reopened under s.25 of the Money Lenders Ordinance.

5.  For the present purpose, it would not be necessary to go into details of these allegations. Based upon these allegations, D raised a counterclaim against P. 

6.  The relevant procedural matters are set out in the table below:

Date	Event
19 February 2019	P issued the Originating Summons herein and commenced these proceedings.
24 May 2019	Master Lai directed the parties to file and serve affidavit evidence.
14 June 2019	D filed her 1st Affirmation in opposition to P’s application for a default judgment[1].
27 June 2019	P filed the Affirmation of Lam Wing Ka in response to D’s 1st Affirmation.
17 July 2019	D commenced HCA 1288/2019 against P.  D’s claim in HCA 1288/2019 is same as the counterclaim raised in these proceedings.
18 July 2019	D made an application to consolidate HCA 1288/2019 and these proceedings.
19 July 2019	Master SP Yip directed the parties to file and serve supplemental affidavit evidence in these proceedings.
22 July 2019	D’s solicitors wrote to P’s solicitors, proposing to convert these proceedings to a writ action, so that it would not be necessary to have a consolidation of two set of proceedings.
25 July 2019	D filed her 2nd Affirmation.
30 July 2019	D discontinued HCA 1288/2019.
16 August 2019	P filed the 2nd Affidavit of Chung Chun Hung Simon in response to D’s 2nd Affirmation.
30 August 2019	In a hearing before Master SP Yip, D submitted a draft counterclaim to the court.  The master directed that D should file and serve a supplemental affirmation in support of the counterclaim, with the counterclaim exhibited thereto.
11 September 2019	D filed her 3rd Affirmation to raise the counterclaim, with the counterclaim exhibited thereto.
10 October 2019	P filed the 3rd Affidavit of Chung Chun Hung Simon, by which P applied for striking out the counterclaim.

Analysis

7.  Order 28 rule 7(2) provides:

“A defendant who wishes to make a counterclaim under this rule must at the first or any resumed hearing of the originating summons by the Court but, in any case, at as early a stage in the proceedings as is practicable, inform the Court of the nature of his claim and, without prejudice to the powers of the Court under paragraph (3), the claim shall be made in such manner as the Court may direct under rule 4 or rule 8.” (Emphasis added)

8.  Counsel for P submits that:

(1)  D did not raise her counterclaim in the hearing before Master Lai on 24 May 2019.  D also did not do so in the hearing before Master SP Yip on 19 July 2019.

(2)  In D’s solicitors’ letter dated 22 July 2019, D did not say that she was prepared to raise a counterclaim in these proceedings.

(3)  D’s counterclaim was only raised in the hearing on 30 August 2019, without any prior notice to P.

(4)  There has been delay on D’s part in raising the counterclaim.  D has not offered any reasonable explanation for the delay.

(5)  In these circumstances, there has been non-compliance with Order 28 rule 7(2), and D’s counterclaim should be struck out.

(6)  Irrespective of the outcome of the striking-out application, these proceedings should not be converted to a writ action.  The parties have filed their respective affidavit evidence.  The deponents of the affidavits and the affirmations filed in these proceedings can be required to give viva voce evidence in the trial and be subject to cross-examination.  The court can hear their evidence and make a determination on the disputes between the parties.

9.  Counsel for D submits that there are factual disputes in these proceedings, which cannot be resolved without hearing viva voce evidence from the witnesses.

10.  Having considered the papers and the parties’ submissions, in my view, it cannot be said that D has any inordinate delay in raising the counterclaim.  It is true that D did not raise the counterclaim in the first hearing before Master Lai on 24 May 2019.  However, just a few weeks thereafter, D commenced HCA 1288/2019 on 17 July 2019.  By her solicitors’ letter dated 22 July 2019, D proposed not to have two set of proceedings but to convert these proceedings to a writ action.  It would be plain and obvious to an ordinary reasonable reader that D was proposing to determine her claim raised in HCA 1288/2019 as a counterclaim in these proceedings.  This proposal was not accepted by P.  In the next hearing, the hearing on 30 August 2019, D raised her counterclaim.  With these events in mind, I would not say that there has been any inordinate delay by D in raising the counterclaim.  I am unable to agree with P that D has not raised the counterclaim at an early stage in these proceedings.  I would dismiss the striking-out application made by P.

11.  D’s counterclaim in fact is a defence to P’s claim.  In my view, there are factual disputes between the parties, and those factual disputes should be properly dealt with in a writ action.  In a writ action, the issues in disputes are defined by pleadings, and all the documents relating to the disputes would have been disclosed by the parties.  In order to facilitate the resolution of factual disputes, pleadings and discovery are essential.  It would not be desirable to resolve factual disputes in the absence of any pleading and discovery.

12.  Converting the present proceedings to a writ action would not lead to unnecessary delay. If P is of the view that none of the matters raised by D is believable and there is no arguable defence to P’s claim, P may apply for summary judgment in the writ action.  If P is right, P may obtain judgment against D within a relatively short period of time.  However, if any of the matters raised by D is a triable issue, it would be necessary to spend time to resolve the matter in a proper trial in the writ action.

13.  For avoidance of doubt, I make no comment on the merits of the parties’ respective cases in this decision.  Nothing said in this decision should be taken as a comment on the substantive merits of the parties’ cases.

14.  I would give the following directions:

(1)  these proceedings be continued as if the cause or matter had been begun by writ;

(2)  leave to P to file and serve a statement of claim within 14 days;

(3)  leave to D to file and serve a defence and counterclaim within 14 days thereafter;

(4)  leave to P to file and serve a reply and defence to counterclaim within 14 days thereafter;

(5)  leave to D to file and serve a reply to defence to counterclaim within 14 days thereafter;

(6)  liberty to apply.

Deposition

15.  For the reasons above, I dismiss P’s application for an order to strike out D’s counterclaim. I also give the directions as set out in [14] above.

16.  P failed in the striking-out application.  P also failed in opposing D’s application for an order converting these proceedings to a writ action.  Costs should follow the event.  There be a costs order nisi that costs of these applications (including costs reserved) be paid by P to D forthwith and be summarily assessed on paper.  There be leave to D to file and serve a bill of costs for summary assessment within 7 days after the costs order nisi becoming absolute, and leave to P to file and serve a written reply to the said bill within 7 days thereafter.