CHEUNG AH MEI AND ANOTHER v. WONG SHIU LING

HCA 2025/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2025 OF 2014

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D E C I S I O N
(on Costs)

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Introduction

1.  This was an appeal of the defendant (“D”) against Master Chow’s order dismissing her application to strike out the statement of claim against the plaintiffs (“Ps”), which was essentially for sums allegedly payable by D pursuant to an oral agreement.

Background to the dispute

2.  The 1^st plaintiff (“P1”), the 2^nd plaintiff (“P2”), and D were/are the shareholders of Sung Tung Nursing Home Company Limited (“Company”), holding respectively 37.5%, 25%, and 37.5%.

3.  The Company was operating an elderly home at premises in West Kowloon (“Premises”).  The expiry date of the Premises was on about 6 September 2011.

4.  In about 2010, when it became apparent to the parties that the lease was not likely to be renewed, the parties negotiated an agreement.  According to Ps, on about 10 August 2011, Ps, D, and a Shie Wai Nin (“Shie”) on behalf of a company called Sino Care Enterprise Management Limited (“Sino Care”) orally agreed, among other things, to reallocate the existing customers of the Company and to transfer the government funded spaces allocated to the elderly home run by the Company to other elderly homes operated by D (“Agreement”).

5.  In the amended statement of claim (“ASOC”), Ps pleaded that the Agreement was made orally at the office of Sino Care and that the existence of the Agreement was evidenced by an undated Chinese memorandum signed by Shie (“Memorandum”)[1].

6.  According to Ps, the Agreement contained the following express terms:

(i) Existing customers of the Company shall be relocated to other elderly homes operated by D and other elderly homes operated by Sino Care;

(ii) The 43 government funded spaces allocated to the Company be transferred to elderly homes operated by Ds;

(iii) D shall, whether via Sino Care or otherwise, make monthly payments to the shareholders of the Company as follows:

(a) HK$120,000 for the 43 government funded spaces;

(b) HK$2,000 for each customer who pays monthly service charge equal to or exceeding HK$6,000;

(c) HK$1,500 for each fee paying customer who pays monthly service charge not exceeding HK$6,000.

(iv) The above payments (“Monthly Compensation”) shall be by P1, P2 and D in the proportion of their respective shareholdings.

7.  Further, according to Ps, upon the expiry of the lease of the Premises, pursuant to the Agreement, the Company relocated its customers and the government funded spaces were transferred to D’s elderly home, and D, had via Sino Care or by herself or her nominee, made the Monthly Compensation since September 2011 on a monthly basis, but D had failed to pay since 1 December 2012.

8.  D’s case was simply that Ps sued the wrong entity, as the Agreement was clearly and unambiguously evidenced by the Memorandum which embodied the Agreement, and that the Memorandum “expressly” provided that the paying entity of the Monthly Compensation was/is Sino Care, as opposed to D.

D’s Striking Out Summons

9.  D’s summons for striking out was issued on 8 December 2014, essentially under Order 18 r 19 of RHC on the ground that the statement of claim disclosed no reasonable cause of action against D, and D had also relied on the court’s inherent jurisdiction, namely that the claim was frivolous, vexatious or was otherwise an abuse of the process of the court (“Striking Out Summons”).

10.  As D had also relied on the court’s inherent jurisdiction, at the 1^st substantive hearing fixed for the Striking Out Summons before Master Kwang on 13 March 2015, the matter was adjourned and directions were given for both parties to file evidence to provide further background information.

11.  Eventually, the substantive hearing took place on 20 July 2015 before Master Chow who made an order which included the following:

(i) The Striking Out Summons be dismissed;

(ii) Leave be given to Ps to file and serve the amended statement of claim, with amendments be restricted to “clarification as to what was meant by evidenced by an undated Chinese memorandum signed by Shie Wai Nin “ in paragraph 4 of the statement of claim;

(iii) Costs of the hearing with counsel certificate be to Ps.

(“Master Chow’s Order”)

12.  D filed the Notice of Appeal on 31 July 2015.  The ASOC was duly served by Ps on D on 17 August 2015.

13.  Paragraph 4 of ASOC read as follows”

“The Agreement was made orally in the office of Sino Care at 32^nd floow, Tung Luen Industrial Building, 1-4 Yip Shing Street, Kawi Chung, New Territories, Hong Kong and the existence of the Agreement was evidenced by an undated Chinese memorandum signed by Shie Wai Nin”.

14.  The italicized parts were the amendments made pursuant to Master Chow’s direction.

15.  It was D’s case that Ps’ case the ASOC suffered from the same deficiency as with the original pleading, and that the Memorandum contradicted Ps’ case, in that the Memorandum was made between Sino Care on one hand, and Ps and Ds ( as the 3 shareholders of the Company).

16.  It transpired from D’s skeleton submissions for the appeal that if the court was not minded to strike out the entirety of the ASOC, D would ask the court to strike out Paragraph 4, or alternatively the words following the word “and” in Paragraph 4 whether in the original statement of claim or in the ASOC (“Impugned Statement”).

17.  At the hearing, Ps took the view that the Impugned Statement would not be relevant to the validity of their claim or otherwise affect the validity of their claim, and decided to take a practical approach not to incur further time and costs, by agreeing to re-amend the ASOC and deleting the Impugned Statement in paragraph 4 and to serve the re-amended statement of claim within 7 days.  This was accepted by D.

18.  In the circumstances and in light of what is said below in this judgment, I will dismiss D’s Notice of Appeal.  The only matter left for this court to decide is the question of costs of the Striking Out Summons.

Costs

19.  Prior to the appeal hearing before this court, there had in fact been 3 hearings when the following orders for costs were made:

(i) At the direction hearing on 16 December 2014 before Master Leong, the costs of the Striking Out Summons was reserved;

(ii) At the 1^st substantive hearing fixed before Master Kwang, the costs of the Striking Out Summons was again reserved;

(iii) At the substantive hearing before Master Chow, D’s Striking Out Summons was dismissed, and costs were awarded to Ps, notwithstanding Ps were given leave to amend the statement of claim.

20.  D sought :

(i) Costs of the amendment including the 1^st set of amendments in any event;

(ii) Costs of the Striking Out Summons, both of the appeal hearing and the costs below.

21.  So far as the 1^st direction hearing is concerned, I am of the view that costs of that hearing should be costs in the cause of the Striking Out Summons.

22.  As for the hearing before Master Kwang, this was a hearing fixed for 2 hours for substantive argument, and it would appear that the hearing was adjourned, as Master Kwang opined that parties should furnish further background information, particularly in light of D relying on inherent jurisdiction. According to D, the adjournment was eventually with the agreement of both parties.  In my view, there should be no order as to the costs of the adjournment of this hearing.

23.  I then come to the hearing before Master Chow, and also the appeal hearing before this court. 

24.  Costs are in the discretion of the court.  Order 62 rule 5 of RHC now sets out special matters to be taken into account by the court in exercising its discretion as to costs:

“(1) The Court in exercising its discretion as to costs shall, to such extent, if any, as may appropriate in the circumstances, take into account –

(aa) the underlying objectives set out in Order 1A, rule 1;

(a) any such offer of contribution as is mentioned in Order 16, rule 10, which is brought to its attention in pursuance of a reserved right to do so;

(b) any payment of money into court and the amount of such payment;

(c) any written offer made under Order 33, rule 4A (2);

(d) any written offer which is expressed to be “without prejudice save as to costs” and which relates to any issue in the proceedings, but the Court may not take the offer into account if, at the time it is made, the party making it could have protected his position as to costs by means of a sanctioned payment or a sanctioned offer under Order 22;

(e) the conduct of all the parties;

(f) whether a party has succeeded on part of his case, even if he has not been wholly successful, and

(g) any admissible offer to settle made by a party, which is drawn to the Court’s attention.

(2) For the purpose of paragraph (1)(e), the conduct of the parties includes –

(a) whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue;

(b) the manner in which a party has pursued or defended his case or a particular allegation or issue;

(c) whether a claimant who has succeeded in his claim, in whole or in part, exaggerated his claim; and

(d) conduct before, as well as during, the proceedings.

25.  D’s Counsel Mr Chang had submitted that Master Chow’s Order in relation to costs was “inexplicable”, namely that although leave was given to Ps to amend, costs were ordered against D.  Mr Chang, submitted that costs of amendment are usually paid by the party seeking leave to amend.

26.  However, according to Ps’ Counsel Mr Chau, Master Chow awarded costs to Ps, for, among other things, Master Chow was of the view that D should have sought further and better particulars from Ps in relation to the Impugned Statement, and that as D had not sought further and better particulars, the learned Master then directed that leave be given to Ps to amend to clarify what was meant by the Impugned Statement.

27.  As mentioned earlier, the Memorandum was signed by Shie on behalf of Sino Care on one part and Ps and D as shareholders of the Company on the other.  In my view, there was ambiguity in Paragraph 4, whether in its original or amended version, and that it was not unreasonable for D to levy criticisms thereat.

28.  On the other hand, it was also clear in the statement of claim that Ps’ case was based on an oral agreement with terms set out in paragraph 5.  D could have sought further and better particulars of Paragraph 4 rather than issuing the Striking Out Summons.   

29.  In the Striking Out Summons, D sought that Ps’ statement of claim be struck out in its entirety, that Ps’ action against D be dismissed and that D be at liberty to enter judgment against Ps.  Having considered the statement of claim, I am of the view that the Striking Out Summons is unlikely to succeed in its entirety.

30.  D’s alternative relief sought was only set out in Counsel’s submissions lodged on 11 November 2015, 5 days before the hearing before this court. 

31.  Mr Chau submitted that Ps had offered to amend but there was no correspondence placed before this court as to what their proposed amendments were.

32.  Ps had to amend their statement of claim twice and eventually agreed to delete the Impugned Statement altogether.  Ps should pay costs of such amendments.  The effect of Ps agreeing to further amend the ASOC by deleting the Impugned Statement means that D in the end achieved or succeeded only part of his alternative relief sought in this appeal.  In my view, he should pay 70% of the Ps’ costs of and occasioned by the Striking Out Summons, including the appeal hearing before this court.  The parties are to submit their statements of costs for summary assessment within 14 days List of Objectives to be lodged 7 days thereafter.