曾韻如 v. 柯金牌

[English Translation – 英譯本]

HCSA 19/2019

[2022] HKCFI 890

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

SMALL CLAIMS TRIBUNAL APPEAL NO 19 OF 2019

(ON APPEAL FROM SCTC 14672 OF 2019)

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J U D G M E N T

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Background

1.  The applicant Madam Tsang (transliteration)  filed a claim with the Small Claims Tribunal (“the Tribunal”)  against the defendant Mr Or (transliteration)  to recover $30,000 debt and “interest as of the trial date”. The sum of interest as calculated in her Statement of Claim amounted to $236,183.13.

2.  Madam Tsang told the Adjudicator that she suffered from a mental illness and had not recovered yet. Therefore, upon her request, the Adjudicator allowed her hometown relative Mr Hung Tin Sang (transliteration)  to be her representative.

3.  In the absence of the defendant, the Adjudicator allowed the claim of Madam Tsang and awarded her $30,000 of debt of $90 costs and post-judgment interest.

4.  Madam Tsang was dissatisfied and considered that the Adjudicator should have awarded her pre-award interest according to section 33(1)  of the Small Claims Tribunal Ordinance (“the Ordinance”), Cap. 338.

5.  On 3 December 2021, I granted her leave to appeal on the following three questions:

(1)  Should a mentally ill claimant be represented by another person to speak on her behalf?

(2)  Can the Tribunal award any pre-award interest?

(3)  If the amount of principal and pre-filing interest to be recovered exceeds the jurisdiction of the Tribunal (the amount then was $75,000), can or should the Tribunal transfer the case to the District Court?

6.  The notice of motion of appeal and submission have been served on Mr Or, and this appeal is conducted in his absence.

Facts of the Case

7.  On 21 January 2000, Madam Tsang lent $200,000 to Mr Or who promised to settle the loan after 2 months and to pay $10,000 interest. However, the post-dated cheque in the sum of $210,000 issued by him to her was dishonoured. Later, Mr Or wrote two loanslips. One of which dated 21 November 2000 (Exhibit 4)  was later endorsed on 8 January 2002, and the other one was (Exhibit 5). On 8 December 2017, Mr Or verbally confirmed that he still owed $120,000 and promised to settle it by installments. Up to 3 December 2018, he still had an outstanding amount of $30,000. The following table shows his repayments:

Loan	Repayment $	Balance of outstanding principal $
An oral agreement to borrow $200,000 for a term of 2 months, with $10,000 interest
21 January 2000		(200,000)
On 21 March 2000, the defendant issued the cheque which was dishonoured		(200,000)
Loanslip dated 21 November 2000: borrow HK$200,000 to be settled within 1 year (Exhibit 4).
8 January 2002	50,000	(150,000)
On 8 January 2002, Mr Or endorsed the Loanslip dated 21 November 2000 (Exhibit 4).
18 May 2004	30,000	(120,000)
On 18 May 2004, Mr Or exchanged another IOU which clearly stated that he borrowed HK$120,000 from Madam Tsang and would settle it within 1 year (Exhibit 5).
On 8 December 2017, Mr Or verbally confirmed to Madam Tsang and Mr Hung that he owed HK$120,000 and promised to settle it in 1 year by repaying $10,000 each month in 2018.
30 January 2018	10,000	(110,000)
27 February 2018	10,000	(100,000)
28 March 2018	10,000	(90,000)
30 April 2018	10,000	(80,000)
29 May 2018	10,000	(70,000)
29 June 2018	10,000	(60,000)
8 October 2018	10,000	(50,000)
Mr Or requested to defer the repayment period for 2 months to which Madam Tsang agreed.
26 October 2018	10,000	(40,000)
3 December 2018	10,000	(30,000)

8.  On 4 April 2019, Madam Tsang filed a claim with the Tribunal to recover $30,000 and $236,183.13 interest as calculated from 22 January 2000 (the date on which the cause of action allegedly arose)  to the date of the claim.

9.  From the transcript, one can see that the Tribunal queried Madam Tsang’s claim of interest and said that it exceeded the jurisdiction of the Tribunal. Madam Tsang raised the issue of transferring the case to the District Court, but the Adjudicator opined that the case was beyond her jurisdiction and refused to transfer it. Eventually, the Adjudicator allowed the claim of $30,000 with post-judgment interest but did not award any pre-award interest. Her reasons were as follows (Reasons for Judgment at paragraphs 6-8):

“6. I explained to Mr Hung that if the claimant intended to recover from the defendant a sum of principal and interest exceeding $75,000, she should discontinue this case and file it with the District Court.

7. Mr Hung asked me to transfer the case to the District Court, but I stated clearly that the claimant’s request for $30,000 principal plus $236,183.13 interest had already exceeded the jurisdiction of this Tribunal. I could not transfer the case to the District Court.

8.  Mr Hung said that he needed to ask about the claimant’s intention, so I sepcially adjourned the case for a while for him to discuss with the claimant whether or not to file the case with the District Court. After the adjournment, Mr Hung told me that the claimant decided to recover from the defendant $30,000 debt only. I further confirmed with the claimant whether or not she wished to recover from the defendant $30,000 debt only, to which she nodded to indicate her agreement.”

Should a mentally ill claimant be represented by another person to speak on her behalf?

10.  According to section 19(1)(d)  of the Ordinance, with the leave of the Tribunal, any person who is authorized in writing by a party to appear as his representative shall have a right of audience.  This should include a claimant who is mentally ill but still mentally capable of understanding and dealing with the litigation.  Under these circumstances, the Tribunal should still carefully consider whether the representative is familiar with the facts of the case, whether there is any conflict of interest between him and the claimant, and whether he is capable enough to represent the claimant to deal with the litigation.

11.  However, if the claimant is a mentally incapacitated person, he must sue by a next friend who must be represented by a solicitor. As no legal representation is allowed in the Tribunal, the claim should be transferred to the District Court. From paragraphs 10-13 of the Reasons for Judgment, one can see that the Adjudicator understood this principle as well.

12.  Madam Tsang told the Adjudicator that she “suffered from a mental illness and had not recovered yet”. The Adjudicator allowed Mr Hung to represent her only at the hearing on 21 May 2019.

13.  However, in the “Statement of Claim”[1] filed with the Tribunal, Madam Tsang made clear from the outset that she had been regarded as a person “under a disability” since 2004. She explained how Mr Or defaulted on the repayment. Until 2017, after she had pressed Mr Or for repayment many times but in vain, and as she was under a disability, it was not until November 2017 that she asked for Mr Hung’s assistance, and in between there was a stay of 13 years. Moreover, she knew that the cause of action had exceeded the period of limitation. Therefore, pursuant to section 22 of the Limitation Ordinance, Cap. 347, she pointed out that the limitation period of 6 years could be extended by reason of her disability.

14.  With these explanations, even though the Adjudicator had earlier allowed Mr Hung to be a representative, the Adjudicator should have investigated Madam Tsang’s mental capacity in order to decide whether or not she needed to be represented by a next friend and whether the case should be transferred to the District Court. However, the Adjudicator did not fulfill her duty of investigation in this aspect. The issue of mental capacity emerged again when Madam Tsang applied for a review, and only then did the Adjudicator call for medical reports.

15.  Afterwards, Madam Tsang applied to the Court of First Instance for leave to appeal, therefore, the review was not conducted. At the time when dealing with the application for leave to appeal, Deputy High Court Judge Leung appointed an Official Solicitor to represent Madam Tsang. Later, the Official Solicitor obtained Madam Tsang’s medical reports which proved that although she suffered from schizophrenia (i.e. mental disorder)  between 1 April and 23 October 2019, the doctor certified that she was mentally capable of understanding the case and capable of expressing her own will. Therefore, Madam Tsang was mentally capable when she filed this claim with the Tribunal on 4 April 2019.

16.  During the appointment period, the Official Solicitor had not applied to have the award of the Tribunal set aside.  On 25 October 2021, after considering the submission of the Official Solicitor, Deputy High Court Judge Leung made an order nisi to discharge the order of appointment. That order nisi was made absolute on 8 November. After retrieving the right to sue on her own, Madam Tsang did not apply to have the award of the Tribunal set aside on the ground of mental in capacity either, but proceeded with the application for leave to appeal and this appeal. Therefore, although the Tribunal failed to investigate Madam Tsang’s mental capacity before the hearing, it eventually did not prejudice her right to sue on her own in the claim but regrettably led to a delay of the appeal.

17.  Fortunately, from the “Statement of Claim” and submission prepared by Mr Hung for Madam Tsang, one can see that he was familiar with the facts of the case and did his utmost to protect her interest. Moreover, his analysis was thorough albeit he did not understand the law. Although nearly 80 years old, he still had a very clear mind which satisfied the requirement of a representative at paragraph 10. In my opinion, he was a suitable person to represent Madam Tsang. Therefore, he was allowed to assist Madam Tsang in making representation in this appeal in exercise of the Court’s discretion.

Can the Tribunal award any pre-award interest?

18.  Pre-award interest can be divided into two categories:

(1)  Interest agreed between parties; and

(2)  Interest conferred by the Ordinance.

19.  Category (1)  interest: As the name suggests, this category of interest is determined by an agreement between both parties in the litigation. No matter how high the interest rate is or whether it is compound interest, as long as it does not violate sections 24 and 25 of the Money Lenders Ordinance, Cap. 163, the Tribunal is generally required to award interest under the agreement.

20.  However, since such interest arises from contract, under section 5(1)  of the Ordinance and paragraph (1)  of the Schedule to the Ordinance, this interest shall be included into the amount claimed in determining whether it exceeds the jurisdiction of the Tribunal (being $75,000 in the relevant period of this case).

21.  Category (2)  interest: Even if there is no agreed interest between the parties, under section 33 of the Ordinance, the Tribunal may at its discretion award pre-award interest:

“(1)  The tribunal may include in the amount of an award interest at the rate specified in subsection (4) on the whole or any part of the sum claimed for the whole or any part of the period between the date when the cause of action arose and the date of the award.

(2)  The powers conferred by subsection (1)  may be exercised—

(a)  whether or not interest is expressly claimed;

(b)  at any time after the date of the award if it appears to the tribunal that the failure to claim or to award interest was through inadvertence; and

(c)  where an award is made against the defendant in his absence.

(3)  An award shall carry interest at the rate specified in subsection (4)  on the aggregate amount thereof, or on such part thereof as for the time being remains unsatisfied, from the date of the award until satisfaction.

(4)  The rate of interest specified for the purposes of subsections (1)  and (3)  shall be the rate from time to time applicable to judgment debts under section 50 of the District Court Ordinance (Cap. 336). ” (emphasis added)

22.  It should be noted that:

(1)  Under section 33(1), the Tribunal at most can only compute the pre-award interest based on “the whole… of the sum claimed” as the principal, but cannot compute the pre-award interest based on the money already repaid by the defendant before the claim has been filed. However, if the defendant repaid part of the money after the claim has been filed by the claimant, the Tribunal still has the discretion to award interest on “the whole… of the sum claimed” in accordance with section 33(1), save that the interest would be reduced along with the principal.

(2)  The Tribunal may, at its discretion, determine the interest period, but the maximum interest period may only be the whole period from the time the cause of action arose to the date of the award.

(3)  If the Tribunal awards interest, in accordance with section 33(4), the interest rate must be the rate of judgment debts (8% per annum in the relevant period of this case)  under section 50 of the District Court Ordinance, Cap. 336.

23.  Since it is the interest awarded by the Tribunal on discretion, category (2)  interest is not included in the amount claimed in determining whether it exceeds the jurisdiction of the Tribunal.

24.  Regardless of whether it is interest in category (1)  or (2), it the award should clearly and separately state the principal and the pre-award interest, so as to avoid the situation of interest on top of interest when calculating the post-award interest under section 33(3).

25.  With regard to this case, as Madam Tsang did not know whether the method of computing interest was legal and reasonable, for the sake of prudence, she filed a claim in the Tribunal under sections 5(2), 33, 9 and 7 of the Ordinance and the interest prior to the claim was computed as $236,183.13. Yet she made it clear to the Tribunal that she could waive the excessive part of the amount or apply for transferring the case to the District Court.

26.  Most of the interest claimed by Madam Tsang actually belongs to category (1), including:

(1)  $10,000 due on 21 March 2000; and

(2)  the "agreed" interest derived from that $10,000, i.e. the monthly interest rate of 2.5%. However, with sympathy to Mr Or who was in poor health, Madam Tsang lowered the monthly interest rate to 0.8% (annual interest rate at 9.6%)  with reference to the cases of the District Court. 19 years was adopted for the computation.  See Note 6 of the "Statement of Claim".

This leads to $236,183.13.

27.  As the cause of action occurred on 22 March 2000, by the date when the claim was filed, the claim for category (1)  interest has far exceeded the period of limitation and also exceeded the jurisdiction of the Tribunal.

28.  Madam Tsang raised the following points:

(1)  She claimed that since she was a person under a disability during that period, the period of limitation should be extended until she regained her capacity. However, Exhibits 1 to 3 provided by her only showed that she was treated in a psychiatric department of the Hospital Authority, without any other diagnostic information. She also had a proof of disability allowance granted by the Social Welfare Department and an identity of a person with disability recognized by the MTR, but those were not enough to prove her mental incapacity and when such condition existed, so the period of limitation still applied.

(2)  Madam Tsang relied on 陳永 訴 關劍雲, DCCJ 6097/2003, decided by District Judge Marlene Ng (as she then was)  on 26 August 2004, to support her claim for pre-award interest. In that case, the defendant agreed to pay a monthly interest of $4000, but Madam Tsang only agreed with Mr Or on the interest $10,000, and there was no other agreed interest. The factual backgrounds of the two cases are different, and 陳永 訴 關劍雲 has not laid down a legal principle applicable to this case.

Therefore, Madam Tsang’s arguments cannot stand.

29.  In any case, after 21 March 2000, no category (1)  interest was mentioned in Exhibit 4 or 5, or Mr Or’s oral promise. Therefore, Madam Tsang could not rely on the original interest of $10,000 to assert that there would be interest over the subsequent period of arrears, let alone setting an interest rate by herself. In principle, she could only claim category (2)  interest.

30.  With regard to the claim for category (2)  interest, Madam Tsang’s claim amount could at most be $30,000 + $10,000 being the agreed interest. The cause of actions occurred on 22 March 2000. Under section 23(3)  of the Limitation Ordinance:

“(3)  Where any right of action has accrued to recover any debt or other liquidated pecuniary claim... and the person liable or accountable therefor acknowledges the claim or makes any payment in respect thereof, the right shall be deemed to have accrued on and not before the date of the acknowledgment or the last payment:…”

According to section 24 of the Limitation Ordinance, such acknowledgment shall be in writing and signed by the person making the acknowledgment.

31.  The right of action can be repeatedly extended by section 23(3): sections 25(5)  and (6)  refer.

32.  The provisions of Hong Kong are based on the English Limitation Act 1939. However, such law was amended in the United Kingdom in 1980. Under section 29(7), when the right of action is barred by the Limitation Act, it can no longer be revived by subsequent written acknowledgment or payment:

“[N/A] … a current period of limitation may be repeatedly extended under this section by further acknowledgments or payments; but a right of action, once barred by this Act, shall not be revived by any subsequent acknowledgment or payment.”

The amended ordinance of the United Kingdom has not been introduced into Hong Kong.

33.  Mr Or’s last written acknowledgement was Exhibit 5 in 2004. He did not pay any money pursuant to it, and Madam Tsang had not pressed for payment for 13 years. Although the cause of action was barred in 2010, the payment in 2018 revived the right of action. Based on section 23(3)  of the Limitation Ordinance, the right of action arose on 3 December 2018.  Category (2)  interest from that date to 21 May 2019 was: $30,000 x 169/365 x 8% = $1,111.23. Mr Or has been in arrears for so long and I cannot see why he should not pay the full maximum interest.

Can or should the Tribunal transfer the case to the District Court?

34.  Based on the reason stated in paragraph 26, the claim exceeded the jurisdiction of the Tribunal. The District Court also has jurisdiction to try this type of cases involving debt recovery. Since the Adjudicator also queried whether Madam Tsang could recover such a huge sum of pre-award interest, she should have transferred the case.

35.  The claim went beyond the jurisdiction as Madam Tsang did not understand the law. It can be seen from her “Statement of Claim” that she understood that the interest would be reduced along with the principal. It was just that she applied the wrong interest rate and did not know the difference between category (1)  and category (2)  interest. She was by no means abusing the procedure of the Tribunal or filing an arbitrary claim in the Tribunal in order to save the filing fee of the District Court. If only the Adjudicator had made a little investigation, the original intention of the claim and transfer would have been known. And Madam Tsang had also expressed that she could waive the excessive amount of the claim or have it transferred to the District Court. Therefore, the Adjudicator erred in law when she asked Madam Tsang to choose to discontinue her claim before filing a fresh claim in the District Court.

36.  Even though during the adjournment, Mr Hung obtained the claimant’s consent not to insist on transferring the case to the District Court, it was a decision made on the basis of the Adjudicator’s erroneous statements about the pre-award interest and transfer of the case, and was thus unsafe.

37.  Moreover, the fact that Madam Tsang agreed not to transfer the case to the District Court was not tantamount to a waiver of her right to be awarded category (2)  interest in the Tribunal. It was an error of law for the Adjudicator not to investigate or exercise her discretion to consider awarding pre-award interest.

38.  As matters stand, since Madam Tsang has not appealed against the principal or jurisdiction, I will not deal with the principal. However, the District Court does not have jurisdiction to compute pre-award interest based on an award of the Tribunal. Therefore, it is not appropriate to transfer the case to the District Court at this stage. Moreover, the claim for category (1)  interest has passed the period of limitation and has simply no prospect of success.

Conclusion

39.  On the first question of the appeal, I have stated how the Tribunal shall deal with a mentally ill claimant in paragraphs 10-11 above. I will not repeat here. The Adjudicator in this case has handled the matter inappropriately.

40.  With regard to the second question, the claim contains category (1)  interest. $10,000 had passed the period of limitation, and the rest is not supported by any agreement. In respect of category (2)  interest, the Adjudicator erred in law in failing to consider awarding interest when Madam Tsang chose not to have the case transferred. I will exercise my discretion and award pre-award interest of $1,111.23 to Madam Tsang.

41.  With regard to the third question, if the principal sought together with the agreed interest exceeds the jurisdiction of the Tribunal, the Tribunal can and should transfer the case to the District Court, rather than ask the claimant to discontinue the case and file a new claim in the District Court.

42.  To sum up, the appeal is allowed. I hereby make an order nisi that Mr Or shall pay the costs for the application for leave to appeal and for this appeal. Madam Tsang shall file and serve a statement of costs within 14 days, and the defendant may file and serve a statement of objection within 14 days thereafter. I will deal with the issue of costs on paper and inform both parties of the result separately.