EVER YEAR INTERNATIONAL LTD v. TSUI YIU KWONG

DCMP 3379/2014

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO 3379 OF 2014

-----------------------------------

----------------------------------

----------------------

DECISION

----------------------

1.  This is the plaintiff’s application for the following:-

(a) Time for appeal against the costs order made on 22 January 2015 (“the Costs Order”) by the master be extended;

(b) the Costs Order be set aside; and

(c) the Costs Order be replaced with an order that the costs of the plaintiff’s originating summons filed on 23 December 2014, the defendant’s affirmation filed on 21 January 2015, and the hearing before the master on 22 January 2015 be costs in the cause of the writ action.

Background

2.  The defendant and the two shareholders of the plaintiff, Tsui Yat Kwong and Tsui Woon Kwong, (“Yat” and “Woon” respectively) are brothers.

3.  The plaintiff is the registered owner of the property at 19/F, and Flat Roof 1 and 2 on Roof floor of Block B, MP Industrial Centre, No 18 Ka Yip Street, Hong Kong (“the Property”).

4.  On 23 December 2014, the plaintiff filed an originating summons against the defendant to claim possession of the Property pursuant to Order 113 Rules of District Court (“RDC”). The first hearing of the originating summons was fixed for 22 January 2015.

5.  On 14 January 2015, the defendant’s solicitors wrote to the plaintiff’s solicitors pointing out that by reason of the factual disputes that underlie the Property, an application under Order 113 RDC was clearly inappropriate and invited the plaintiff “to forthwith withdraw the application with costs payable to our client, and seek an order that these proceedings to continue as if begun by writ.”

6.  On 16 January 2015, the plaintiff’s solicitors replied and rejected the defendant’s solicitors’ suggestion.

7.  On 21 January 2015, the defendant filed and served an affirmation in opposition.  According to the defendant’s version of events, Yat and the defendant agreed to purchase the Property at the price of HK$880,000. The Property was to be purchased by Yat to be held on trust for both himself and the defendant on a 50/50 basis, that is, each will have 50% interest in the Property.  The defendant did not know Yat would purchase the Property in the plaintiff’s name.  In early 2012, Yat suggested the Property be sold.  The defendant decided to buy Yat’s 50% share in the Property and asked for a valuation report on the Property.  Since the valuation report was the only outstanding matter, the defendant assumed the sale would go ahead and proceeded to move his belongings into the Property.  It was not until October 2012 that the defendant discovered the Property was purchased in the plaintiff’s name.

8.  On 22 January 2015, the master ordered the action be continued as if begun by writ.  He also ordered the costs of the plaintiff’s originating summons and the defendant’s affirmation filed on 21 January 2015 be paid by the plaintiff.

9.  On 3 February 2015 the plaintiff took out a summons to vary the Costs Order and the summons was heard on 9 February 2015.  The summons was dismissed for being inappropriate.

10.  Subsequently, the plaintiff filed the Notice of Appeal against the Costs Order on 16 February 2015.

Time extension for the plaintiff’s appeal

11.  In considering the plaintiff’s application for time extension, the court must balance the interests of all parties in considering where the interest of justice lies.

12.  The fault for not making a timely application to appeal lies with the plaintiff’s legal representatives in making an erroneous application to vary the Costs Order instead of lodging an appeal. Though the application to vary the Costs Order was made before the time to appeal expired, the application was clearly misconceived. It is no excuse for the plaintiff to claim they were unaware the application to vary the Costs Order was inappropriate until the master dismissed the application. The plaintiff’s Counsel explained the plaintiff was under the misconception the application to vary the costs order was appropriate partly because the remarks sent by the master to the parties seemed to suggest a summons should be taken out to vary the Costs Order and no suggestion was made that an appeal should have been lodged. I have expressed my strong disapproval of such submissions at the hearing which I do not intend to repeat in full; suffice to say, it is not the duty of the Court to advise or suggest to the parties what appropriate applications should be made. Legal representatives are expected to be conversant in the law and to provide proper legal advice to lay clients. There is simply no good reason why the plaintiff’s solicitors should fail to lodge an appeal within the prescribed time limit. It is regrettable that the plaintiff is now forced to apply for leave to appeal out of time by reason of the erroneous application taken out by the legal representatives.

13.  In considering the plaintiff’s leave application, I note that though the absence of a good reason for failing to lodge a timely appeal is a strong ground to deny the plaintiff’s application, the court should consider the interest of all parties and whether the interest of justice would be served if the plaintiff’s application is denied. I note that on one hand, the defendant should not be made to suffer the consequences of the plaintiff’s erroneous application to vary the Costs Order. However, on the other hand, the defendant conceded he suffered no real prejudice and that the delay was not of a substantial period.

14.  Furthermore, for reasons set out below, I find the grounds of the appeal to be meritorious.

15.  In view the meritorious grounds of appeal, the insubstantial delay, and the lack of any real prejudice to the defendant, I consider it to be against the interest of justice to pre-empt the plaintiff’s appeal by reason of its solicitor’s misapprehension on the proper application to be made on the Costs Order.  

16.  Having considered all the circumstances, I allow the plaintiff’s application and order time be extended to 16 February 2015 (being the date on which the Notice of Appeal was filed) for the plaintiff to appeal against the Costs Order.

17.  I shall now deal with the substantive arguments of the appeal.

Hearing afresh

18.  It is trite law that an appeal against a master’s decision shall be considered afresh by a judge in chambers: see Konew Finance Ltd v Wong Kai Ming & others, unrep, DCCJ 17916/2000 and paragraph P/58/3/1, Hong Kong Civil Procedure 2015, Vol 2.

19.  Defence Counsel cited a number of cases to make good the proposition that it is incumbent on the appellate court to be satisfied the master’s decision is unreasonable, or the master erred in law in the exercise of his discretion before the costs order should be disturbed. However the parties in the present case have failed to produce the transcript of the hearing before the master.  Moreover the parties have not provided the court with the master’s reasons for his decision, if any. Both Counsel agreed that under such circumstances, the matter should be heard afresh.

20.  Without the transcript and the reasons of the master’s decisions, this court is unable to assess whether the master had erred in law or that the exercise of his discretion was unreasonable.  In such circumstances, I am of the view the appeal should be conducted by way of a re-hearing and the decision on costs should be considered afresh.

Discussion

21.  It is not disputed that the usual costs order to be made after an originating summons has been ordered to be continued as if begun by writ is costs in the cause of the writ action: see also paragraph 28/8/2 Hong Kong Civil Procedure 2015, Vol 1.

22.  Defence Counsel does not seek to argue the plaintiff’s claim does not fall within Order 113 RDC. Rather, the main objection raised by Defence Counsel is that there are substantial factual disputes in this case which renders the plaintiff’s decision to commence proceedings by way of originating summons inappropriate.

23.  According to the documents filed in the defendant’s affirmation, it is evident the 3 brothers have all along been in dispute over the Property.  The defendant maintains the assertion that Yat bought the Property on trust for the both of them on a 50/50 basis.  This assertion was made known to both Woon and Yat in a letter dated 1 September 2013.  Since both Woon and Yat are the plaintiff’s directors, the plaintiff must also have knowledge of the same.

24.  It must have been evident to the plaintiff that any litigation involving the Property would be hotly contested and would be met with the defendant’s claim of a beneficial interest in the Property held on trust by Yat.  However the anticipation of a hotly contested claim is not determinative in deciding whether the plaintiff should be penalized in costs for choosing to start the action by way of originating summons under Order 113 RDC. The plaintiff should only be penalized in costs if the plaintiff should have anticipated substantial factual disputes such that it is inappropriate to commence proceedings by way of originating summons (see Lam Pak Cheung v Lin Zhen Lue [2009] 1 HKLRD 35 at paragraph 49).

25.  In summary, the defendant contends he has a beneficial interest in the Property and that his beneficial interest is held by Yat on trust for him. However there are 2 fundamental flaws with the defendant’s claim as set out in his affirmation.

26.  Firstly, his claim is unsupported by the documents filed in his affirmation. The Land Registry clearly states the plaintiff is the beneficial owner of the Property. The Property was purchased by the plaintiff when the defendant was a beneficial shareholder in the plaintiff. Despite the defendant’s purported transfer in his shares in the plaintiff after the Property was purchased, there is no document executed or even registered in the Land Registry to reserve or protect the defendant’s purported beneficial interest in the Property.

27.  Secondly, the defendant does not make clear on what basis on the purported trust arises. The defendant’s evidence is unclear as to whether the trust arises from a contribution to the purchase price in the Property, or from the agreement between the defendant and Yat to purchase the Property, or some other basis.  

28.  I noted that at the time the plaintiff took out the originating summons, the following were not in dispute:-

(a) The defendant did not make any contributions to the Property and/or any capital contributions to the plaintiff.

(b) In respect of the alleged loan made by the defendant to Yat in the sum of $1.5 million, the defendant does not say this loan was treated by the parties as his contribution to the Property.

29.  Since the defendant concedes he has not contributed to the purchase price of the Property and/or not made capital contributions to the plaintiff, there can be no claim of trust arising from contributions made to the Property and/or the plaintiff.  

30.  If the defendant’s assertion of trust is based on the agreement between himself and Yat, this would be a claim on trust based on the Pallant v Morgan equity (see Pallant v Morgan [1953] Ch. 43 and paragraphs 24-038 - 24-040 Snell’s Equity, 33^rd Ed.). One of the requirements required under the Pallant v Morgan equity is that either the defendant has acted to his detriment or the plaintiff has obtained some advantage through its unconscionable conduct (see paragraph  24-040 Snell’s Equity, 33^rd Ed). However the defendant fails to depose facts relating to these matters in his affirmation.

31.  Firstly, the defendant has not set out how and whether he has acted to his detriment which would render it unconscionable for Yat to deny the defendant’s beneficial interest in the Property. In fact, from a reading of his affirmation, other than agreeing on the purchase price of the Property, the defendant has done nothing further regarding the Property. Similarly, in respect of the subsequent agreement to purchase Yat’s 50% share in the Property, the defendant has done nothing to finalize or complete the purchase of Yat shares. Furthermore, the defendant unilaterally moved his things into the Property before the parties could come to an agreement on the purchase price of Yat’s shares.

32.  Secondly, the defendant has failed to set out how Yat or the plaintiff has obtained an advantage such that it would be unconscionable for Yat to repudiate the agreement or deny the defendant’s beneficial interest in the Property. The Property was purchased in 2002 and the plaintiff has now held the Property for about 13 years. In all this time, the defendant never contributed to the purchase price of the Property or made other contributions to the maintenance of the Property. The defendant acknowledged there were water leakage problems in the Property but there is no evidence the defendant assisted in this matter. From a reading of the defendant’s affirmation, all expenses of the Property must have been either paid by Yat or through the rental income generated from the Property.    

33.  Based on the above, even on the assumption that all facts deposed in the defendant’s affirmation could be established, those facts alone are insufficient to create a trust in the Property under the Pallant v Morgan equity. The defendant, even on his own case, cannot raise any tenable claim of beneficial interest in the Property. In such circumstances, there cannot be any substantial factual dispute that is determinative of the parties’ respective claims so as to render the issuance of the originating summons improper or inappropriate.

34.  In such circumstances, the plaintiff should not be penalized in costs for commencing the action by way of originating summons under Order 113 RDC.

35.  In respect of the defendant’s letter dated 14 January 2015, I agree with the plaintiff’s submissions that this letter should have little bearing on whether the plaintiff should be penalized in costs. Firstly, the defendant’s letter invited the plaintiff to convert the action as if begun by writ and asked the plaintiff to withdraw the originating summons with costs to the defendant.  It is not surprising that the plaintiff would reject the defendant’s invitation or suggestion since there is no need to withdraw the originating summons if it would be turned into a writ.  Secondly, the letter was sent before the filing of the defendant’s affirmation. Hence the plaintiff was not in a position to consider what allegations the defendant would raise in the proceedings. Based on the facts as known to them at the time the originating summons was issued, the defendant’s assertions of beneficial interest in the Property and such interest being held on trust is unsupported by any documentary evidence. In such circumstances, the said letter cannot be determinative or assist in considering the Costs Order.

Summary

36.  By reason of matters set out above, I am of the view the plaintiff was entitled to commence the proceedings by way of originating summons and that its application under Order 113 RDC was not an abuse of process or improper. The proper costs order should be costs of the plaintiff’s originating summons and the costs of the defendant’s affirmation filed on 21 January 2015 be costs in the cause of the writ action.

37.  I therefore make the following orders:-

(a) Time for the appeal against the Costs Order be retrospectively extended to 16 February 2015.

(b) The Costs Order be set aside and replaced by the following costs order:

“Costs of the plaintiff’s originating summons filed on 23 December 2014 (including costs of the hearing before master on 22 January 2015) and costs of the defendant’s affirmation filed on 21 January 2015 be costs in the cause of the writ action.”

Costs

38.  In respect of the appeal hearing, I am of the view that half of the hearing was spent on dealing with the plaintiff’s application for time extension and the other half was hearing substantive arguments on merits.

39.  Although the plaintiff was successful in the application for time extension, they were at fault in lodging the appeal out of time. I see no reason why the defendant should bear the costs of the plaintiff’s application for time extension which was necessitated by the plaintiff’s previous erroneous application to vary the costs order. I am of the view the plaintiff should bear half of the defendant’s costs of the appeal.

40.  In respect the hearing on substantive merits, I am of the view that the costs should follow the event and the plaintiff should be entitled to the costs of that portion of the appeal.

41.  Since each party will bear half the costs of the appeal, the effect would be that the costs orders would cancel out each other.  

42.  Hence I make a costs order nisi that there be no order as to costs.  Unless any party applies to vary the costs order within 14 days hereof, the costs order shall become an order absolute.