LAU MO CHOI v. LAU MUK FAT (as the Manager of Lau Shau Wo Tso ‘劉壽和祖’)

HCA 1263/2012

[2025] HKCFI 2656

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1263 OF 2012

________________________

________________________

________________________

D E C I S I O N

________________________

I. INTRODUCTION

1.  This is the Plaintiff’s appeal against Master’s decision of 9 January 2025 dismissing the Plaintiff’s Summons (the “Summons”)  filed on 16 September 2024 for:-

(1)  a final (or the latest draft copy)  of a global settlement agreement between the Defendant and Mr Wong Kwok Wah (“WKW”)  in relation to all litigations and/or disputes between Lau Shau Wo Tso (the “Tso”)/Defendant and WKW (the “Settlement Agreement”); and

(2)  the details of all previous offers made by the Tso/Defendant to WKW in relation to all litigations and/or disputes between the Tso/Defendant and WKW inclusive of the date of such offer, the terms of such offer, and the response of WKW to such offer.

2.  In the Notice of Appeal, the Plaintiff does not seek (2)  anymore.  So, the only issue in this de novo appeal is whether a discovery order should be made for the Settlement Agreement.

II.  BACKGROUND

3.  The main action was tried before Wilson Chan J in October and November 2018, and the Judgment was handed down on 22 February 2019 ([2019] HKCFI 380).  I shall not repeat the background of the case.  Suffice to say, for the present purposes, that:-

(1)  The Plaintiff is a member of Branch A of the Tso;

(2)  The Defendant is a member of Branch B of the Tso;

(3)  The Defendant is the manager of the Tso;

(4)  In 1994 and 1995, the Tso entered into an agreement (the “Development Agreement”)  with WKW, a land developer, whereby the Tso’s lands were assigned to WKW and some other individuals for building small houses thereon;

(5)  The small houses were built;

(6)  The small houses were assigned back to the Tso; and

(7)  The present action concerns six of the small houses (the “Houses”).

4.  The remaining dispute upon the Judgment is his Lordship’s order made in §56(2)  of the Judgment in terms of paragraph (1)  of the prayer for relief in the Re-Re-Amended Defence and Counterclaim, namely, “[t]he expenses to be borne by the Plaintiff under paragraphs 21 and 22 hereof to be assessed”.  To appreciate what this relief is about, the following pleas in the Re-Re-Amended Defence and Counterclaim are pertinent:-

“6. The Defendant avers that:

(3)  Notwithstanding the Order dated 13.08.2010 made by the Deputy High Court Judge L Chan… in HCMP 1760/2009, at the material time [WKW] was not able to have the 6 Houses assigned to the Tso free from encumbrances. It was only after a series of litigations including HCA 1902/2009 and CACV 195/2010 (on appeal from HCMP 1760/2009)  that the encumbrances were cleared by the Court of Appeal in the judgment of CACV 195/2010 dated 15.04.2011.

(5)  Well before the 6 Houses were assigned to the Tso and since about October 2010,

(a)  Members of the two Branches of the Tso have agreed a general formula for the division of assets belonging to the Tso that regardless of the number of members in an individual Branch, the assets will be equally shared between the two Branches so that each Branch will get 50% of the total value (“the Agreement for Distribution of Assets”).

(b)  In a similar vein, any liabilities and expenses incurred for and on behalf of the Tso will be equally borne between the two Branches regardless of the number of members in either Branch so that each Branch will bear 50% of the total expenses (“the Agreement for Sharing Liabilities”).

…

(10)  Pursuant to the Agreement between Lau Ping, and the Defendant and acting in the interest of the Tso as a whole, the Defendant in the capacity of the manager of the Tso has instituted three actions against [WKW] and other relevant defendants for inter alia breaches of the Development Agreement.

Particulars

HCA 1879/2011, HCA 896/2012 and HCA 897/2012

(11)  The claims in HCA 1879/2011 include, inter alia:-

(a)  a claim on delay in assigning the 6 Houses free from encumbrances to the Tso by [WKW];

(b)  a claim on defects in the fixtures and fittings of the 6 Houses under the Fitting-out Agreement; and

(c)  a claim against [WKW] and the relevant defendants therein to reassign to the Tso some of the Re-granted / Sub-divided Lots and other relevant lots of land not yet developed into small houses.

(12)  The claims in HCA 896/2012 include, inter alia:-

(a)  a claim against [WKW] for specific performance of the said written agreement dated 15.12.1994 or damages for breach of the same; and

(b)  a claim against the 2^nd Defendant therein to assign a lot of land back to the Tso.

(13)  The claims in HCA 897/2012 include, inter alia:-

(a)  a claim against [WKW] in relation to a denial of an easement which provides access road(s)  to connect the 6 Houses to the public roads including Tai Mong Tsai Road; and

(b)  a claim in relation to [WKW]’s failing to construct a box sewage system for the benefits of the Houses.

(14)  By reason of the claims in HCA 1879/2011 and HCA 897/2012, alienation of the ownership of any of the 6 Houses from the Tso to individual members will be impossible or unworkable (as a matter of conveyancing), and/or will jeopardize the interests of the Tso under these actions. The following claims are particularly adversely affected.

Particulars

(a)  The claim based on defects in the fixtures and fittings of the 6 Houses under the Fitting-out Agreement in HCA 1879/2011. The 6 Houses were finished 6 years ago and must be properly refurbished before they can be sold for a competitive price.

(b)  The claims based on the denial of the easement and failure to construct a box sewage system by [WKW] in HCA 897/2012. The claim for easement is particularly important on the ground that without the access way to Tai Mong Tsai Road, none of the Houses can be sold for a good price.

…

20. The Defendant repeats paragraphs 1 to 19 hereof.

21. By reason of all the aforesaid, the Defendant as manager of the Tso incurred expenses as particularised below to be assessed:-

(1)  legal costs incurred by the Tso in the action referred to in paragraph 6(3)  above [(“Item 1”)];

(2)  government rents paid for the 6 Houses [(“Item 2”)];

(3)  land premium for the 6 House to be assigned to the Tso payable to [WKW] [(“Item 3”)];

(4)  stamp duties paid for the assignments of the 6 Houses to the Tso[(“Item 4”)];

(5)  professional charges for inspection and valuation reports in relation to the Houses [(“Item 5”)];

(6)  expenses incurred [(“Item 6”)] in:-

(a)  changing the locks of the 6 Houses;

(b)  constructing footpaths to connect the 6 Houses located in Section D of Lot 85, Lot 286 and Lot 284 in D.D. 258 to public roads;

(c)  renovating the house on Section D of Lot 85 in D.D. 258; and

(7)  future expenses for completion for the 6 Houses [(“Item 7”)].

5.  Effectively, the Plaintiff admitted to the above.  Therefore, in §52 of the Judgment, Wilson Chan J said that “the plaintiff cannot deny his liability to share the ‘total expenses already paid or payable to be assessed’”.  In his Lordship’s sealed Order, the assessment of the expenses is also expressly confined to these 7 items.

III.  THE AGREEMENT FOR SHARING LIABILITIES

6.  The Agreement for Sharing Liabilities, pleaded in §6(5)(b)  of the Re-Re-Amended Defence and Counterclaim and subject to the reasonableness of the liabilities and expenses (see Judgment §53), was an agreement whereby the two Branches would share the “total expenses”.  The total expenses were identified in §21 of the Re-Re-Amended Defence and Counterclaim.  §21(7)  is in my view a catch-all expenses to ensure that any further or future expenses for completion of the 6 Houses would be equally shared between the two Branches.

IV.  RELEVANCE OF SETTLEMENT AGREEMENT BETWEEN DEFENDANT AND WKW

7.  Mr Billy Ma, counsel for the Defendant, submits that whatever the Settlement Agreement was about would not affect the liabilities to be shared under the Agreement for Sharing Liabilities.  In his submissions, any settlement sum received under the Settlement Agreement would be assets under the Agreement for Distribution of Assets and thus would be completely irrelevant to the expenses.  With respect, I disagree because:-

(1)  The dispute between the Tso and WKW is at least partly concerning the expenses.  Any settlement sum to settle the litigation would be attributable to the expenses.

(2)  The settlement sum could not be said to enhance the value of the 6 Houses, about which the Agreement for Sharing Assets was solely concerning.  In this regard, Mr Ma also suggests that the Tso would have to account to its members any income it receives in any event, and thus there would be no unfairness to the Plaintiff.  That the end result may be the same is one matter (and thus it is unfortunate in my view that parties have to argue over the present Summons and the appeal), but my concern is whether the settlement sum has any effect on the quantum of the liabilities.  Therefore, Mr Ma’s such suggestion takes him nowhere for the present purposes.

(3)  In a hypothetical example in the exchange I had with Mr Ma in order to test his position, I suggested that the expenses for the construction of footpath, being a dispute under HCA 897/2012 and Item 6, were invoiced for HK$500,000, and the Tso paid it, but later disputed it because of the defects of the work.  Eventually, the Tso and WKW agreed to pay back the Tso HK$250,000 in a settlement agreement without admission to liability.  Mr Ma submits that in such a hypothetical example, the expenses to be shares would still be HK$500,000, and the Tso would account for this receipt of HK$250,000 separately as assets.  This, in my view, cannot be right.  The sum paid in this context, even on a non-admission basis, clearly goes to the expenses of the construction of the footpath (under Item 6), or to the expenses incurred in litigation in relation to the construction of the footpath, which would still be part of the expenses to complete the 6 Houses (under Item 7). 

(4)  Mr Ma also submits that if one has to work out by how much the expenses would be deducted, then the assessment of expenses would become a very complicated exercise.  That may be so, but if that was the agreement, one cannot rewrite it simply because it turns out that the performance of the agreement would be very complicated.  In any event, if the expenses for litigation in relation to completion of the 6 Houses can be regarded as Item 7, then one may readily put any settlement sum under Item 7.

(5)  There also seems to be a concern that the settlement sum may be so large to offset any liabilities that the Plaintiff would not have to share any liabilities.  This, Mr Ma apparently suggests, would go contrary to the Plaintiff’s admission to the Agreement for Sharing Liabilities.  I disagree.  The Plaintiff would still be liable, just that there would no more liability to share after the set-off.  If the fact is that there is no more liability to share, so be it.  I cannot see why this would become a reason to say that any reduction or off-set of liabilities would become irrelevant.

8.  In my view, the litigation between the Defendant and WKW pleaded in §6(10)  and explained in §6(11)  – (14)  of the Re-Re-Amended Defence and Counterclaim is reasonably clearly litigation to ensure that the 6 Houses would be completed for the Tso. In particular, the litigation covered Items 5 and 6, and that the expenses of the litigation itself were part of Item 7.

9.  According to the Plaintiff, WKW told him that a global settlement agreement was reached with respect to all the litigation between him and the Defendant, whereby WKW had to pay the Defendant HK$21 million.  This, by definition, must include the litigation pleaded in §6(10)  of the Re-Re-Amended Defence and Counterclaim, and so is relevant at least to Item 7.  It may also be relevant to Items 5 and 6 given that the litigation pleaded in §6(10)  covered arguably Items 5 and 6. 

10.  It is, however, not entirely clear whether there was any other litigation than that pleaded in §6(10)  of the Re-Re-amended Defence and Counterclaim covered under this global settlement agreement.  But even assuming there was other litigation, it would be a matter for the trial court to see whether, and if so, how the reduction of the expenses could be apportioned.  The relevance would not be undermined even upon such assumption.

V.  EXISTENCE OF THE SETTLEMENT AGREEMENT

11.  Of the Plaintiff’s evidence that WKW informed him of such a Settlement Agreement, the Defendant has not made any denial.  I am satisfied that there is a prima facie case of the existence of the Settlement Agreement.

VI.  WITHOUT PREJUDICE PRIVILEGE?

12.  The Defendant contends that the Settlement Agreement was without prejudice materials and so discovery order should not be made.

13.  The legal principles in relation to without prejudice privilege are well-established:-

(1)  “[A]s a general rule the ‘without prejudice’ rule renders inadmissible in any subsequent litigation connected with the same subject matter proof of any admissions made in a genuine attempt to reach a settlement” (emphasis added): see Rush & Tompkins Ltd v Greater London Council and Another [1989] AC 1280 at 1301C-D per Lord Griffiths. 

(2)  The reason is “because it would discourage settlement if he believed that the admissions might be held against him.  But it would surely be equally discouraging if the [party making admissions or concessions] knew that if he achieved a settlement those admissions [or concessions] could then be used against him by any other [party related to the same subject matter] with whom he might also be in dispute”: see Rush & Tompkins Ltd v Greater London Council and Another, supra at 1301B.

14.  The present assessment of expenses concerns the amount of the expenses which the Plaintiff should pay the Defendant under the Agreement for Sharing Liabilities.  The Settlement Agreement concerns the rights and liability as between the Defendant and WKW. They are not the same subject matters.  Therefore, the without prejudice privilege does not attach here. 

VII.  SCOPE OF THE ORDER

15.  Because the relevance of the Settlement Agreement arises from the litigation pleaded in §6(10)  of the Re-Re-Amended Defence and Counterclaim, the Settlement Agreement or any other settlement agreements should be related to the litigation pleaded in §6(10). They are not necessarily only related to the litigation, but have to cover the litigation.  For any settlement agreement completely not related to the litigation pleaded in §6(10), they should not be included in the Order. For the sake of completeness, I do not see why “latest draft”, as framed in the Summons, would be necessary.

VIII.   DELAY

16.  The Summons was issued late on 16 September 2024, when the original assessment had scheduled to take place before Master on 23 September 2024 with 3 days reserved.  The reason for the delay was that the Plaintiff came to know the Settlement Agreement only in mid-August 2024, when the Plaintiff happened to talk to WKW.

17.  Howsoever late it was, the Master adjourned the assessment sine dine as a result of the Summons.  No dates have been fixed yet.  Little prejudice would arise in the absence of any milestone dates.

IX.  CONCLUSION

18.  Having considered the above, I am satisfied to make the following discovery order:-

(1)  Master Order of 9 January 2025 shall be set aside;

(2)  The Defendant do disclose by affirmation to be filed within 14 days from today the global settlement agreement between the Defendant and WKW in relation to all or any of HCA 1879/2011, HCA 896/2012 and HCA 897/2012; and

(3)  If the settlement agreement is not in the Defendant’s possession, custody or power, the Defendants shall make an affirmation within 14 days from today stating (a)  whether the settlement agreement was at any time in his possession, custody or power, and (b)  if so, when he (i)  parted with it and (ii)  what has become of it.

19.  As regards costs, although the scope of the discovery order I made is not as wide as the Plaintiff sought by the Summons, I think the Plaintiff has obtained an order in terms of most of the Summons.  By a broad-brush approach, I order that the Defendant shall forthwith pay the Plaintiff 70% of the costs of the appeal and 45% of the costs of the Summons before the Master below (which the Master has already assessed), the difference of 25% due to the Plaintiff’s abandonment of discovery of the communications of offer mentioned in §2 above, which was in my view rightly dismissed by the Master below.  For the costs of the appeal before me, I summarily assessed the whole costs of the appeal at HK$88,000, with a discount factored in to reflect the Plaintiff’s failure to comply with paragraph 8 of Practice Directions 14.3.

20.  Lastly, I thank counsel for their assistance.