CHAN KA HO ABRAHAM v. MASS CHOICE LTD

HCA 205/2018

[2024] HKCFI 3396

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 205 OF 2018

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REASONS FOR DECISION

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1.  By his Notice of Appeal dated 25 June 2024, the Plaintiff (“P”)  appeals against part of the costs order made by Master Lai dated 11 June 2024 in respect of the costs of the O.48 examination of judgment debtor proceedings herein (“the Costs Order”).

2.  The part that is now appealed against is the refusal by Master Lai to award costs of the 1^st, 2^nd and 3^rd Hearings (defined below)  to P to be paid by Madam Tung Yin Ling Cora and Madam Yik Wai See, the examinees who were the officers of the Defendant (respectively “Tung” and “Yik”, together “the Examinees”).

3.  At the conclusion of the hearing, I dismissed the appeal with costs to the Examinees then summarily assessed at HK$70,000.  I now provide my reasons.

The basic facts and relevant procedural history

4.  P was the landlord and, in this action, sued the Defendant tenant for arrears of rent.

5.  On 24 June 2021, P obtained a summary judgment in the sum of HK$1,014,000 being rent from November 2017 to February 2021 at HK$26,000 per month.

6.  On 26 November 2021, Master J Wong ordered the Examinees to attend court to be orally examined pursuant to O.48 r.1.

7.  Personal service of the Master J Wong’s order on the Examinees was unsuccessful despite multiple efforts.  It is now not disputed by the Examinees that they intentionally evaded service.

8.  On 7 March 2022, Master Phoebe Man granted an order of substituted service and adjourned the examination to 16 May 2022 for call-over.  Substituted service was accordingly effected.

9.  On 16 May 2022, both Examinees did not turn up at the call-over hearing.  Master Rita So in their absence gave the usual directions, adjourning the examination to a date to be fixed with 1 day reserved and ordering the Examinees to produce no later than 21 days before the adjourned hearing the Defendant’s books and documents relating to assets and income of the Defendant such as tax returns, accounts, bank statements etc for the last 6 years (“1^st Hearing” and “the Discovery Order”).

10.  Again, there was difficulty in serving Master So’s said order.  On 27 September 2022, Master Kot granted an order for substituted service of the order and of the notice of the adjourned hearing fixed on 24 October 2022.

11.  The Examinees did not comply with the Discovery Order and no such documents of the Defendant were discovered on or before the due date of 3 October 2022.  That notwithstanding, P did not seek an adjournment of the 24 October 2022 hearing and went on to brief counsel to attend.

12.  On 24 October 2022, the Examinees failed to turn up.  Master Hui adjourned the oral examination sine die with liberty to restore (“2^nd Hearing”).

13.  Very shortly after, P restored the oral examination hearing to be heard on 8 March 2023 despite no documents having yet been discovered by the Examinees.  On 15 November 2022, the court notified the Examinees by post of the adjourned hearing.

14.  On 19 January 2023 and pursuant to leave granted on 12 January 2023, P commenced contempt proceedings against the Examinees for failing to obey the Discovery Order and to attend the 1^st and 2^nd Hearings.  Having been unable to effect service of the Originating Summons of the contempt proceedings (“the Contempt OS”), P applied for and obtained an order for substituted service of the Contempt OS.

15.  P again did not seek any adjournment of the oral examination scheduled on 8 March 2023 and apparently also briefed counsel to attend it.  On 8 March 2023 and unsurprisingly, the Examinees again did not turn up to attend court for examination (“3^rd Hearing”).

16.  On 28 April 2023, Deputy High Court Judge H Au-Yeung (“the Judge”, and as he then was)  heard the Contempt OS and found that the Examinees were guilty of contempt and issued a warrant of committal against them ([2023] HKCFI 1170).

17.  Yik was arrested on 21 May 2023 and brought before the Judge the next day on 22 May 2023.  Tung surrendered herself at the same hearing.

18.  Tung then attended her oral examination under O.48 on 22 August 2023 and Yik attended her oral examination under O.48 on 15 January 2024.  Both examinations were conducted before Master Lai.

19.  On 17 May 2024, Master Lai directed that the costs of the oral examination proceedings be disposed of on paper.  On 11 June 2024, Master Lai rendered his Notes of Decision and gave the Costs Order.

20.  On 17 June 2024, the Judge heard the Contempt OS regarding mitigation and sentencing and fined Tung and Yik each HK$200,000 and awarded indemnity costs of the contempt proceedings against them.  As noted in §24 of the Decision of the Judge dated 17 June 2024 ([2024] HKCFI 1642), he accepted, despite P’s contest, that the Examinees have fully purged their contempt of not complying with the oral examination orders and not complying with the Discovery Order.  Indeed, the Judge noted in §31 that the Examinees produced additional documents to P which were not covered by the Discovery Order.

21.  It is common ground that no enforcement process was issued based on the information obtained in the said 2 examinations.

The refusal by Master Lai to allow P’s costs of the 1^st, 2^nd and 3^rd Hearings to be paid by the Examinees

22.  One unusual feature is that P was seeking the Examinees, and not the Defendant, to pay to P 3 sets of costs relating to the O.48 examination.  This feature was prominently referred to by Master Lai in §§1, 2, 4, 22 and 27 of the Notes of Decision.

23.  By the Costs Order, Master Lai dealt with the 3 respective sets of costs sought by P by

(a)  ordering the Examinees to pay P his costs for the applications for the 2 orders for substituted service to be taxed on indemnity basis;

(b)  disallowing P’s claim for the Examinees to pay the costs of the 1^st, 2^nd and 3^rd Hearings (“the Refusal”); and

(c)  also disallowing P’s application that the Examinees do pay the costs of the 2 oral examinations.

24.  As mentioned, P now only appeals against the Refusal.

25.  The reasons for the Refusal were given by Master Lai in §§22 to 25 of the Notes of Decision :

“ 22. The 1^st Hearing was usual directions hearing for Order 48 examination. Usual directions were granted. I see no reason why the Examinees should be personally liable for costs for that hearing. Whether the Judgment Debtor should be liable for such costs is not on the agenda before me and I express no view on the same.

23. The 2^nd and 3^rd Hearings were restored hearings for examination before Yik and Tung had complied with the Discovery Order. There was no chance that meaningful examination could take place before compliance with the Discovery Order. It was simply premature for the Judgment Creditor to restore the examination hearing by then.

24. The cost incurred by the Judgment Creditor for the 2^nd and 3^rd Hearings were caused by unsatisfactory case management of the solicitors acting for the Judgment Creditors. I see no reason why the Examinees should be liable for cost caused by unsatisfactory case management of the solicitors for the Judgment Creditor.

25.  I disallow the Judgment Creditor's claim for such costs.”

Discussion

26.  The following applicable principles and approach are not disputed:

(a)  This appeal would be conducted by way of a hearing de novo.

(b)  However, as this appeal is an appeal against a costs order made by a Master, a judge in chambers in general will not allow such an appeal unless the costs order is unreasonable or the Master erred in law, ie, if he either failed to take into account proper matters or took into account matters that should not have been taken into account (Hong Kong Civil Procedure 2024 §58/1/6).

(c)  The costs of examination under O.48 shall be in the discretion of the Master in whose court the examination has taken place.

(d)  The general practice regarding the costs of an O.48 examination is as stated in Hong Kong Civil Procedure 2024 §48/3/10, as quoted below, which was applied in Trading Consultants Ltd v John Stewart Sloan (DCCJ 2549/2000, unrep., 7 November 2001)  at §§47-49, by Simon Kwang Acting Registrar of the District Court (as the learned Registrar then was):

“ Costs (rr. 1-3) - … Adding the costs to the judgment was justified if the examination had produced some fruitful information or the disclosure of some income, property or assets on which enforcement process could usefully be issued. If the examination proves abortive or does not yield any useful information or material, the general practice, by analogy with an abortive execution, is that no costs will be awarded.”

27.  The statement of general practice in §48/3/10 concerns whether such costs are to be borne by the judgment debtor, and not the examinee, as the statement refers to “adding the costs to the judgment”.  In this regard, at the hearing on 17 May 2024, Master Lai asked P to cite authorities, if any, that support P’s contention that the Examinees, as opposed to the Defendant, should be made liable for the costs of the 3 Hearings and the costs of the examinations.  Mr Tang cited none in his submissions dated 7 June 2024.  At this hearing, this Court made the same enquiry and Mr Tang again was unable to cite any.

28.  The appeal in respect of the costs of the 1^st Hearing can be disposed of briefly.  Mr Tang complained that Master Lai failed to take into account or erred in not accepting the contention he made[1] to the effect that had the Examinees not evaded service, they could have been contacted by P’s solicitors who would have liaised with them and it would have been likely that the set of standard directions would have been agreed, and a joint application would have been made by a consent summons and the 1^st Hearing therefore could and would have been dispensed with; thus, the Examinees should be liable for P’s costs of the 1^st Hearing.

29.  Clearly, this contention is premised upon one assumption on top of another, and particularly the assumption (even if the unrepresented Examinees would have signed a consent summons)  that the Court would approve such a joint application by a consent summons signed by an unrepresented person and dispense with a hearing, which in my understanding the court as a matter of practice would not do, and instead would have the unrepresented person attend court to confirm his/her consent before making the order/direction.

30.  P’s application for the Examinees to pay the costs of the 1^st Hearing is clearly entirely baseless and Master Lai was perfectly right in not taking into account such assumptions including the said incorrect assumption and in refusing P such costs.

31.  In respect of the costs of 2^nd and 3^rd Hearings, it is said by P[2] that his costs principally consisted of fees of counsel briefed to attend the 2 hearings.

32.  Mr Tang contended that Master Lai has erred in not applying the principle that the party whose fault it was that caused an adjournment of a hearing should pay the other party his costs thereby thrown away.  That of course is a well-establish principle vis-à-vis the parties to the proceedings, but is not one that is per se applicable to a non-party, such as, say, a witness who has been served with a subpoena ad testificandum but failed to attend to testify thereby causing the trial to be adjourned.  Mr Tang’s submission made at the hearing was that the Examinees, as officers of the Defendant, were “parties to the O.48 examination proceedings” and the principle applies to an examinee under O.48.  As said, Mr Tang was unable to cite any authority in support.  Mr Tang repeatedly emphasized that the Examinees’ fault was serious and inexcusable in that they have flouted the oral examination orders and in fact have been found guilty of contempt and it was not right that P has no recourse against the Examinees for his wasted costs.

33.  I do not accept the submission that for costs purposes an examinee who is an officer of a body corporate judgment debtor should be treated as “a party to the O.48 examination” as now contended for by P.  A judgment debtor who is ordered to be examined is indeed the defendant in the action and I have no difficulty in visiting him with the liability of costs thrown away by his failure without good cause to attend an O.48 examination.  An officer of a body corporate judgment debtor in my view stands differently.  He is not a party to the action and obviously not the judgment debtor.  He was served with an order from the court ordering him to attend and be orally examined.  Though not exactly analogous, he is more like a witness having been served a subpoena than “a party to the proceedings”.  A witness who fails to answer a subpoena may face contempt proceedings, but I have yet to hear of an instance where he is ordered to pay the costs of the trial thrown away by the adjournment caused by his non-attendance.  I enquired with Mr Tang and he could not name any such instance either.  In the same vein, the standard warning administered to directors of judgment debtor company (“the Warning”)  in the standard directions in an examination order under O.48 only warns the director examinee in respect of non-attendance that “if he/she fails to attend the examination without good cause being shown, he/she is liable to face Contempt of Court Proceedings” (Hong Kong Civil Practice 2024 §48/3/1C).

34.  Therefore and in my judgment and specifically, I do not accept P’s contention that the said general principle concerning the instance of costs thrown away is applicable such as would readily, if not automatically, and without more, make a non-attending examinee who is an officer/director of the judgment debtor liable for the costs thereby thrown away by the judgment creditor due to his non-attendance.  Having taken such a view, I want to make clear, for the avoidance of doubt, that as the Master hearing the O.48 examination is given a wide discretion over costs, I am not holding that in appropriately exceptional circumstances a Master may not exercise his discretion to order the non-attending director/officer of the judgment debtor examinee to pay any part of the judgment creditor’s costs occasioned thereby.

35.  P effectively was also arguing that the seriousness of the misconduct of the Examinees, being a contempt of court, is of itself a basis for ordering them to pay P’s costs thrown away.  There is no doubt that any conduct amounting to a contempt of court cannot be condoned. That said, I am unable to accept that argument.  In my view, if it was the very conduct of their contempt which is relied on as the foundation to seek to have them pay P’s costs thrown away, such should be ventilated in the contempt proceedings, say, by seeking reimbursement of such costs as compensation to be paid by the contemptors, where and when such liability could be adjudicated in its proper forum and context.  My such view is reinforced by the fact that the officer examinee is not warned that he/she might be liable for costs thrown away by the judgment creditor should he/she fails to attend, but only that he/she might face contempt of court proceedings.

36.  I therefore do not find P’s complaints established that the Master has erred by failing to regard the general principle on awarding costs thrown away or the contemptuous misconduct of the Examinees as dispositive.

37.  P complained next that the Master erred in his view or should not have taken these matters into consideration, namely, that “there was no chance that meaningful examination could take place before compliance with the Discovery Order.  It was simply premature for the Judgment Creditor to restore the examination hearing by then” and “the costs incurred by the Judgment Creditor for the 2^nd and 3^rd Hearings were caused by the unsatisfactory case management of the solicitors acting for the Judgment Creditors”.

38.  Mr Tang contended that despite there was no discovery of documents, it was “proper and necessary” for P and P was “justified” to push on with the substantive oral examination because

(a)  further delay might risk allowing the Defendant time to dissipate assets;

(b)  even without the documents, P was still entitled to and could ask the Examinees general questions regarding the assets and income of the Defendant and they were bound to answer, therefore, there was still a chance that useful information might be obtained; and

(c)  P has to fix the date of the adjourned hearing as the hearing date would decide the date for the production of documents by the Examinees in view of the term of the standard and usual direction that their production would be ordered to be made “not later than 21 days before the adjourned hearing”.

39.  Though these have not been spelt out one by one in the Notes of Decision, it is evident to me that the very experienced Master must have considered the matter in the context of :

(a)  Adding the costs of the O.48 examination to the judgment, even as against the judgment debtor, would be allowed only “if the examination had produced some fruitful information or disclosure of income, property or assets on which enforcement process could usefully be issued”;

(b)  An examination under O.48 is not only intended to be an examination, but to be a cross-examination and that of the severest kind, to press the examinee to give all necessary particulars to enable the judgment creditor to issue enforcement process (Hong Kong Civil Procedure 2024 §48/3/7).  The examination therefore is not a mere formal opportunity to ask general and broad questions.  It is therefore also difficult to postulate how a meaningful and potentially fruitful cross-examination can be conducted without the benefit of the prior provision of information and materials as contained in the documents ordered to be produced under the Discovery Order;

(c)  Where an examination has been held, a further examination may be ordered only in special circumstances (Hong Kong Civil Procedure 2024 §48/3/7).  Therefore, an examinee is usually examined once under O.48, and P should not be expecting that a second examination would be ordered against the Examinees;

(d)  The usual course taken by judgment creditors when documents are not produced is to adjourn the examination until the documents are made available, hence paragraph 1 in the Warning warns that judgment debtor may be liable for the costs of the adjournment should full disclosure is not complied with;

(e)  The Examinees were clearly uncooperative in that they had intentionally evaded service of the oral examination orders necessitating P to apply for an order of substituted service twice;

(f)  The order made by Master Hui at the 2^nd Hearing was that the oral examination be adjourned sine die, so as to give time and opportunity for P to enforce the Discovery Order and obtain the documents before restoring the oral examination;

(g)  On 19 January 2023, P issued the Contempt OS and P likewise encountered difficulty in serving it on the Examinees such that yet another substituted service order was applied for and obtained in March 2023.  That being the case, the chance of the Examinees appearing on the 3^rd Hearing, or even if they appeared, being cooperative in the oral examination to be held at the 3^rd Hearing, was evidently remote; and

(h)  Though the dates for the 2^nd and 3^rd Hearings were scheduled, it was always open to P, if they have not obtained the documents, to seek an adjournment from the Court, which they have not.

40.  Considering the matters set out in the preceding paragraph, I think the Master was evidently entitled to come to the views or assessment he expressed in the Notes of Decision, particularly, his assessment that realistically speaking, there was little chance, without the documents and in view of the Examinees uncooperative attitude, that the oral examination, if it took place at the 2^nd or 3^rd Hearings, would be “meaningful” in the sense of being able to obtain useful information such as to enable P to issue enforcement process.

41.  Whether P was “justified” or right in thinking that it was “necessary” to push on with the oral examination to ask general questions about assets, property and income of the Defendant without having had the benefit of the compliance of the Discovery Order was a matter of his own assessment and decision; and as I expressed at the hearing, was understandably a matter an eager judgment creditor might have to wrestle with. However, P’s decision to so push on with the oral examination, under established principles, carried with it the risk that no useful information might be able to be obtained through merely putting these general questions to the Examinees (even if the examination were conducted at the 2^nd or 3^rd Hearing)  and thus the risk to have to bear the costs himself.  In my judgment, the present factual circumstance that costs are sought to be paid by the Examinees or that the 2^nd and 3^rd Hearings were aborted would not change that position.  In this regard and as said, I think the Master was entitled to come to, and has not erred in coming to, his assessment that there was little chance that such useful information or materials would have been obtained even if the oral examination took place at the 2^nd or 3^rd Hearing.

42.  In sum, I hold that the Master has not erred in ordering the Refusal.

43.  At the hearing, Mr Tang also sought to rely on a new contention that the Examinees should pay the thrown away costs of the 2^nd and 3^rd Hearings because they flouted the Discovery Order and paragraph 1 of the Warning has warned them against liability for the costs of the adjournment should they fail to fully comply with the Discovery Order.  As can be gathered above, the oral examination scheduled at the 2^nd and 3^rd Hearings did not take place because the Examinees failed to appear, and not because P adjourned it for lack of documents.  In fact and on the contrary, it has all along been one of P’s main contentions that he was “justified” to continue to push on to schedule or restore the 2^nd and 3^rd Hearings despite well appreciating that there were no documents.  P’s such contention clearly has no merits and must be rejected.

44.  I would also mention that Master Lai articulated his Refusal by stating in the Notes of Decision twice that he “disallow” such costs (§§25 and 35), which is a usual terminology used in taxation.  Whether the Master was disallowing such costs from the angle of taxation or was holding that the Examinees were not liable for the instance of such costs is no matter in the circumstances because I think he has not erred either way.

45.  For these reasons, I dismissed the appeal and having heard parties on costs, made the said costs order and summarily assessed the same.

46.  Lastly, I thank counsel for their assistance.