WEALTH LINK CREDIT CO LTD v. YEUNG KUK LAM AND ANOTHER

HCMP 778/2021

[2022] HKCFI 2909

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 778 OF 2021

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D E C I S I O N

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A. INTRODUCTION

1.  The Originating Summons (“OS”)  in this matter was issued on 3 June 2021. The Plaintiff, a licensed money lender, seeks various reliefs against the Defendants pursuant to inter alios Orders 83A and 88 of the Rules of the High Court.

2.  At issue before the Court at the present hearing is whether the OS should proceed to trial on the basis of the evidence as filed (the Plaintiff’s preferred position)  or whether it should continue as if begun by writ, with consequential directions (the 1^st Defendant’s preferred position).

3.  At the hearing, the Plaintiff was represented by Counsel Mr Tommy Cheung and the 1^st Defendant was represented by Counsel Mr But Sun Wai.

B.   BACKGROUND

4.  It is the Plaintiff’s case that on 13 January 2021:

(1)  The 1^st Defendant had entered into a loan agreement with the Plaintiff (“Loan Agreement”), whereby the 1^st Defendant covenanted with the Plaintiff that the 1^st Defendant would pay the aggregate principal amount stated therein (essentially agreeing to shoulder outstanding indebtedness owed by the 2^nd Defendant, who is his wife, to the Plaintiff);

(2)  The 1^st Defendant had mortgaged his interests in three properties to the Plaintiff by way of the First Mortgage and the Second Mortgage (“the Mortgages”).

5.  The particulars of the properties pledged by way of the Mortgages are as follows:

(1)  Car Parking Space No. 98 on Lower Ground 2 Floor, No.1 East Laguna Street, Laguna City, Kowloon (the “1^st Mortgaged Property”)  (solely owned by the 1^st Defendant);

(2)  Flat A on 25^th Floor of Block 5, No. 31 Laguna Street, Laguna City, Kowloon (the “2^nd Mortgaged Property”)  (jointly owned by the Defendants as tenants in common); and

(3)  Flat A on 11^th Floor of Block 3 and Carpark No. C37 on Carpark Level 1, King’s Park Villa, No.1 King’s Park Rise, Kowloon (the “3^rd Mortgaged Property”)  (jointly owned by the Defendants as tenants in common).

(The 1^st, 2^nd and 3^rd Mortgaged Properties are hereinafter referred to as “the Mortgaged Properties”).

6.  By the OS, the Plaintiff alleges that the 1^st Defendant has failed to pay sums due under the Loan Agreement, and seeks an order for payment of such indebtedness, failing which vacant possession of the properties and orders for sale of the Mortgaged Properties are sought.

7.  In support of the OS, also on 3 June 2021, the Plaintiff filed an affirmation in support setting out inter alia the particulars of the properties, the documents relied upon under which the Plaintiff alleges the indebtedness to the Plaintiff arose, the amount that remains outstanding, and the relief sought.

8.  On 24 September 2021, the matter was heard by Master S H Lee, who gave various directions. This included directions for filing of opposition evidence by the Defendants, followed by a round of reply evidence by the Plaintiff. At the time, the Defendants were jointly represented by Messrs Ivan Lee & Co.

9.  One day prior to the hearing before Master S. H. Lee on 23 September 2021, the son of the 1^st Defendant, Mr Yeung Kam Kong (“YKK”), had filed a consent to act as guardian ad litem for his father and authorized the solicitors to act accordingly.

10.  The only evidence filed in opposition to the OS has come from YKK. He has filed three sets of evidence in support of the 1^st Defendant’s opposition to the OS.  There has been no evidence filed by or on behalf of the 2^nd Defendant.  In brief, the evidence covers the following matters:

(1)  On 23 September 2021, YKK filed his first affirmation alleging that the 1^st Defendant had been suffering from mental problems and showing symptoms of dementia or Alzheimer’s disease prior to the date of the signing of the various documents on 13 January 2021. He exhibited a number of reports and documents by medical professionals (a referral letter from a doctor, which then led to a report from a Dr Paul Pang, a clinical psychologist based in New York). On the basis of these assertions (which included allegations by YKK himself, as well as the medical reports), he said that the Plaintiff’s allegations that the 1^st Defendant made the Mortgages and the Loan Agreement with the Plaintiff “are challenged”.

(2)  On 4 November 2021, following the directions by Master S H Lee, YKK filed his second affirmation giving further particulars about his father’s health and exhibiting the two medical reports which had been used for the guardianship application. These reports were by Dr Cheng Tat Sun, a neurologist (“Dr Cheng”), and Dr Chan Chung Mau, a psychiatrist (“Dr Chan”), respectively. The reports were very brief, given they were made in the standard form usually adopted for guardianship applications. In addition thereto, YKK raised several queries about the whereabouts of the loan proceeds as he said he could not locate any monies going into his father’s bank accounts. He again indicated that the Plaintiff’s allegations that the 1^st Defendant made the Mortgages and the Loan Agreement with the Plaintiff “are challenged”.

(3)  In each of YKK’s affirmations above, there was no development or further particularization as to why the documents were “challenged”, save to point to the mental capacity of the 1^st Defendant.

(4)  Subsequent to the above, in January 2022, the Plaintiff filed reply evidence by way of two affirmations. These were deposed to by two persons who had dealt with the 1^st Defendant in the course of the January 2021 transactions, and addressed inter alia the 1^st Defendant’s mental capacity to enter into the relevant arrangements. Further particulars were given as to the circumstances in which the transactions were entered into. This evidence was presumably put forward in light of the guardianship order having been made, and YKK’s allegations that the entry into the Loan Agreement and Mortgages were “challenged”. In answer to the exhibited medical reports in YKK’s evidence, the Plaintiff exhibited the opinion of Dr Hung Bing Kei Gabriel (“Dr Hung”)  who, based on the materials disclosed in YKK’s first two affirmations, opined that it was unlikely that the 1^st Defendant did not have the medical capacity to understand, agree to the effects of, and sign the Loan Agreement and Mortgages.

(5)  Subsequent to the above exchanges of evidence, the matter went back before Master D. To on 11 February 2022.  At that hearing, leave was given to the 1^st Defendant to file evidence “limited to responding to Dr Hung Bing Kei Gabriel’s evidence”, and for the Plaintiff to file evidence in reply thereafter.  On the same date, directions were given that the OS should go before a judge for further directions.  Just before the hearing, the solicitors for the Defendants ceased to act for the 2^nd Defendant (who thereafter acted in person).

(6)  On 10 May 2022, YKK filed his third affirmation which was substantially longer than his first two affirmations. There was exhibited to this third affirmation further reports of Dr Chan and Dr Cheng. Dr Chan’s report specifically addressed Dr Hung’s report. Dr Cheng’s was a general report on the 1^st Defendant’s medical history. In addition to responding to the evidence of Dr Hung, YKK’s third affirmation sought to address various other matters discussed in the Plaintiff’s reply evidence filed in January 2022. The affirmation drifts between citation of facts from past evidence, with various paragraphs bordering on submissions or analysis, and observations on forensic points which strictly should not be addressed by way of affirmation evidence at all. In the midst of the numerous submission points made by way of the affidavit evidence, it is not entirely clear which specific points were being taken as factual disputes to be raised. As far as can be discerned, the central complaint relied upon was again to cite the “issues of mental capacity” and then simply to conclude that “there are enormous disputes of facts and medical and mental issues of my father the 1^st Defendant related to the circumstances of the signing of the Mortgages and Loan Agreement, thereby necessitating factual witnesses and medical experts to testify in resolving the disputes.” The affirmation concludes with the proposal that the proceedings ought to continue as if begun by writ.

(7)  The above was responded to further by the Plaintiff on 30 June 2022. This exhibited a supplemental opinion from Dr Hung, as well as an opinion from Dr Leung Kwok Leung, a clinical psychologist and neuropsychologist.

(8)  To date, altogether there have been 7 affirmations filed by the parties totaling 96 pages, with another 423 pages of exhibits. This includes 9 different documents prepared by the medical professionals, totaling over 130 pages.

11.  It was after the filing of the above rounds of evidence that the matter came back before the Court.

C.   DISCUSSION

12.  There is no great dispute as to the general principles to be applied when exercising the case management powers of the Court in this scenario. The Plaintiff cites the case of Tierra Trading Ltd v Land Base Ltd,HCMP 3074/2014 (unreported judgment dated 21 August 2015). I would gratefully adopt the following passage from paragraphs 4 to 6 of the said decision:

“4. The relevant provisions empowering the court to deal with such applications are set out in Order 28, rules 4 and 8, which provide:

“Directions, etc., by Court (O 28, r 4)

…

(2)  In any case where the Court does not dispose of any originating summons altogether at a hearing or order the cause or matter begun by it to be transferred to a District Court or some other court or makes an order under rule 8, the Court shall give such directions as to the further conduct of the proceedings as it thinks best adapted to secure the just, expeditious and economical disposal thereof.

(3)  Without prejudice to the generality of paragraph (2), the Court shall, at as early a stage of the proceedings on the summons as appears to it to be practicable, consider whether there is or may be a dispute as to fact and whether the just, expeditious and economical disposal of the proceedings can accordingly best be secured by hearing the summons on oral evidence or mainly on oral evidence and, if it thinks fit, may order that no further evidence shall be filed and that the summons shall be heard on oral evidence or partly on oral evidence and partly on affidavit evidence, with or without cross-examination of any of the deponents, as it may direct.

(4)  Without prejudice to the generality of paragraph (2), and subject to paragraph (3), the Court may give directions as to the filing of evidence and as to the attendance of deponents for cross-examination and any directions which it could give under Order 25 if the cause or matter had been begun by writ and the summons were a case management summons under that Order. (L.N. 152 of 2008)

(5)  The Court may at any stage of the proceedings order that any affidavit, or any particulars of any claim, defence or other matters stated in any affidavit, shall stand as pleadings or that points of claim, defence or reply be delivered and stand as pleadings. (L.N. 404 of 1991)

…

Continuation of proceedings as it cause or matter begun by writ (O 28, r 8)

8.—(1)  Where, in the case of a cause or matter begun by originating summons, it appears to the Court at any stage of the proceedings that the proceedings should for any reason be continued as if the cause or matter had been begun by writ, it may order the proceedings to continue as if the cause or matter had been so begun and may, in particular, order that any affidavits shall stand as pleadings, with or without liberty to any of the parties to add thereto or to apply for particulars thereof.

...”

5. As this is a case management issue, the court should have regard to the objectives of the Civil Justice Reform set out in Order 1A, rule 1:

“1. Underlying objectives

The underlying objectives of these rules are-

(a)  to increase the cost-effectiveness of any practice and procedure to be followed in relation to proceedings before the Court;

(b)  to ensure that a case is dealt with as expeditiously as is reasonably practicable;

(c)  to promote a sense of reasonable proportion and procedural economy in the conduct of proceedings;

(d)  to ensure fairness between the parties;

(e)  to facilitate the settlement of disputes; and

(f)  to ensure that the resources of the Court are distributed fairly.

6. Similar questions were considered in other proceedings and the courts have, depending on the circumstances of each case, made orders appropriate to the matter at hand.  …”

13.  It is the Plaintiff’s position that the matter can proceed to trial involving cross-examination of the deponents whose evidence has already been filed. This would encompass witnesses of fact and also the medical experts’ evidence.  Proposed directions have been put forward to such effect, including for the medical experts to supply appropriate expert declarations (which are presently lacking from the various exhibited reports).

14.  On the other hand, the 1^st Defendant proposes that the matter should continue as if begun by writ with fresh preparation of formal pleadings, witness statements and expert reports. This would necessarily entail a degree of delay.

15.  In support of its position, by skeleton submissions dated 7 September 2022, the Plaintiff relies upon the following reasons:

(1)  First, it is said that the 2^nd Defendant has advanced no positive defence, whereas the only particularized defence belatedly raised by the 1^st Defendant (via YKK)  relates to his mental capacity (or lack thereof). This is, the Plaintiff says, a narrow and focused issue which can be determined upon cross-examination of the experts who have already compiled their respective reports.

(2)  Second, it is said that the OS has progressed to a mature stage in which the evidence filed has already crystallized the issues in dispute.

(3)  Third, it is said that the Plaintiff could suffer irreparable prejudice because the 2^nd Defendant (and hence potentially the 1^st Defendant)  is heavily indebted and the Plaintiff could lose out the longer it takes to resolve these proceedings. In this regard, Mr Cheung fairly acknowledged that there is no direct evidence pointing to the 1^st Defendant’s financial troubles per se; rather, it is the fact that the 2^nd Defendant (i.e. the 1^st Defendant’s wife, and tenant in common for the various properties)  is heavily indebted that is cited in support of this argument.

16.  In the 1^st Defendant’s submissions, reference was made to the prior rounds of evidence. The 1^st Defendant then sought to highlight the following:

(1)  The transactions entered into were disadvantageous to the 1^st Defendant and he received “no consideration” for entering into the same. At the hearing, this point was further developed into an argument on undue influence (a term which had not, prior to the hearing, been expressly mentioned anywhere whether in the evidence filed or in the written submissions). Mr But pointed to evidence suggesting that the 2^nd Defendant had been the primary customer of the Plaintiff for a period of 7 years prior to the transactions in question, that the January 2021 loan and mortgages were arranged by her or under her instruction, and that the whole arrangement was not in the 1^st Defendant’s interests. It was not clear whether the argument was in relation to actual or presumed undue influence.

(2)  There was then a repetition of the allegation as to lack of mental capacity of the 1^st Defendant.

(3)  The point was then made that the signing of the documents by the 1^st Defendant were “full of abnormal features”.

17.  Having considered the available materials, I will exercise the discretion to order the matter to continue as if begun by writ. In so doing, I have had particular regard to the following matters.

18.  First, as to the possible defence of undue influence:

(1)  The allegation of a possible defence of undue influence was only very belatedly raised at the hearing and spelt out as Mr But was on his feet. In conjunction with this, submissions were made as to the alleged possible “collusion” between the Plaintiff and the 2^nd Defendant in causing the 1^st Defendant to enter into the transactions, which I consider there is little to no evidence to support at the present juncture. The way in which this argument emerged, only after three chances had been given to YKK to articulate the 1^st Defendant’s position, is not at all ideal.

(2)  However, and importantly, I consider that there is just enough to raise legitimate disputes as to whether the 1^st Defendant has been subjected to any potential undue influence:

(a)  On the evidence filed by the Plaintiff itself, it can be seen that the 2^nd Defendant was a customer of the Plaintiff for around 7 years. The 1^st Defendant was introduced to the Plaintiff via the 2^nd Defendant. It is the Plaintiff’s own evidence that it was the 2^nd Defendant who had called the Plaintiff’s officer and indicated that her husband could assist her with repaying her outstanding indebtedness.

(b)  There is contemporaneous evidence in the form of messages exchanged between the 2^nd Defendant and the representative of the Plaintiff making arrangements for inter alia what appears to be the transactions in question. One might surmise based on these messages that the process was driven by the 2^nd Defendant rather than the 1^st Defendant.

(c)  As far as can be discerned from the available evidence, the 2^nd Defendant accompanied the 1^st Defendant to the meeting whereupon the transaction documents were signed.

(d)  There is some evidence as to the 1^st Defendant’s ongoing issues with Parkinson’s disease and his general health, the relevance and impact of which the Court cannot determine unless and until assisted by experts.

(e)  There is no dispute that the funds were applied to settle the 2^nd Defendant’s indebtedness owed to the Plaintiff. However, the precise whereabouts or application of the same has not been disclosed in the evidence to date.

(3)  The objective circumstances thus raise questions as to the state of mind of the 1^st Defendant at the material time, the degree to which he might have been swayed by his wife the 2^nd Defendant in entering into the transactions and whether this crossed the threshold into undue influence, and also where the monies were applied (and on whose instructions).

(4)  Hence, whilst the belated articulation of this possible defence and factual disputes in relation thereto is not ideal, it would also not be ideal that the 1^st Defendant be prematurely precluded from asserting this in an appropriate manner (i.e. with pleadings, discovery and the like)  in light of the circumstances highlighted above. Bearing in mind the reminder in Shum Wah Ming v The Estate of Chen King Ngo, CACV 21/1996 (unreported judgment dated 10 July 1996)  that the OS procedure should not be a short-cut to resolve disputes, I consider it more appropriate to order that the matter proceed as if begun by writ. In so saying, I make no criticism of the Plaintiff’s conduct to date. The 1^st Defendant had not fully articulated the nature of the possible defence until the substantive hearing, and it was not for the Plaintiff to discern this based upon the materials previously filed.

(5)  I also bear in mind the general principle that undue influence must be clearly pleaded and particularised (Hong Kong Civil Procedure 2022, §18/8/27; Wing Hang Bank Ltd v Crystal jet International Ltd [2005] 2 HKLRD 795). It would certainly not be ideal for the 1^st Defendant to be running a defence on this basis upon the affirmations as currently filed, as I do not consider they properly pinpoint the specifics of the undue influence alleged.

19.  Second, the fact that not all of the potentially documents have been presently placed before the court also highlights the need for an order as if the proceedings had been begun by writ. With such an order, the Plaintiff would be required to disclose inter alia the documentation showing where the monies were applied, giving the Court a fuller picture as to the nature of the transactions.

20.  Third, in light of the above, I consider that contrary to the persuasive submissions by Mr Cheung, the Court is potentially faced with issues which go beyond the disputes between the experts. The factual circumstances of the signing of the transaction documents is brought into issue, and this involves factual witness evidence which ought to be properly put into context by way of pleadings.

21.  Fourth, the way in which the expert evidence has to date been prepared is also not conducive to simply proceeding to trial on the OS. There had not previously been any specific expert directions, such that there was a multiplicity of opinions and reports which had been tendered without the issues or even the appropriate expert being first identified. There were a total of 3 possible experts on the 1^st Defendant’s side, and 2 possible experts on the Plaintiff’s side, who filed an array of reports. As at the date of the hearing, the 1^st Defendant had not yet identified which experts were to be the actual experts who he would rely upon and would be called to give evidence. Further, there has not been any joint report(s)  identifying issues upon which the experts are in agreement or upon which they differ. It was also not entirely clear whether the various experts had had full access to the same set of materials at the various dates when preparing their panoply of reports. It would be a rather confusing state of affairs to simply proceed to trial in such circumstances when the precise issues which ought to be addressed are not properly defined or addressed.

22.  In relation to the above points (in paragraphs 20 and 21), the need for there to be pleadings to properly define whatever triable issues may exist is a well-accepted basis upon which an order to proceed as if begun by writ may be made (see Wing Hang Bank Ltd v Crystal Jet International Ltd, CACV 140/2000, unreported judgment dated 9 June 2000 at §§14 & 16; Memorial Park Hong Kong Ltd v Secretary for Justice, HCMP 2609/2010, unreported judgment dated 24 June 2011).

23.  Finally, I have considered the possible detriment to the Plaintiff in terms of the delay that this course of action will entail. Whilst the Court has some sympathy for the Plaintiff in terms of there being some urgency to get the matter to trial, this cannot trump the other factors discussed above. In order to minimise the time required, the parties were invited to endeavour to agree a quicker timeframe for the next steps in the further conduct of the matter. There does not appear to be complete consensus between the parties.

24.  Having considered the various matters above, and the letters submitted in relation to the proposed directions, I make an order that:

(1)  The Originating Summons dated 3 June 2021 be continued as if begun by writ;

(2)  The Plaintiff shall file and serve a Statement of Claim within 21 days hereof;

(3)  The Defendants shall file and serve their respective Defence(s)  and Counterclaim(s)  (if any)  within 21 days thereafter;

(4)  The Plaintiff shall file and serve its Reply and Defence to Counterclaim (if applicable)  within 28 days after the respective Defence(s)  and Counterclaim(s)  (if any)  is/are served on the Plaintiff;

(5)  There shall be mutual discovery and inspection of documents within 21 days thereafter;

(6)  Within 49 days thereafter, the Plaintiff and the Defendants do exchange witness statements.

(7)  The Plaintiff and the 1^st Defendant do have leave to adduce expert evidence on the 1^st Defendant’s mental capacity at the time of the execution of the Loan Agreement, the First Mortgage, and the Second Mortgage all dated 13 January 2021, with the 1^st Defendant’s experts being Dr Cheng Tat Sun and Dr Chan Chung May and the Plaintiff’s expert Dr Hung Bing Kei Gabriel, in the field of psychiatry;

(8)  The respective experts shall file their expert reports with signed expert declarations within 35 days of the exchange of witness statements;

(9)  Within 21 days thereafter, the experts shall conduct a without prejudice meeting for the purposes of preparing a joint expert report. The joint expert report shall set out the areas on which the experts have reached agreement and identify what the agreement is;  and those areas which they have not reached agreement, and the reasons for such disagreement.

(10)  Parties shall take out any further interlocutory applications within 21 days after the filing of the joint expert report.

(11)  A case management conference shall be fixed after the deadline for taking out interlocutory applications or the disposition of the last interlocutory application (if any).

25.  I note that the Plaintiff had urged upon the Court that certain of the above directions could be made on an “unless” basis. Whilst I do not consider this is the appropriate juncture to impose such an order, I do make a note specifically that the parties had indicated their agreement at the hearing that if the matter were to be ordered to continue as if begun by writ, they would be amenable to an efficient and condensed timetable. They are reminded of this and any future case management directions will no doubt take this understanding into account.

26.  Insofar as costs are concerned, I make an order nisi that:

(1)  The costs incurred from the initiation of the proceedings up to 10 May 2022 shall be costs in the cause;

(2)  The costs from 10 May 2022 up to and including the present hearing shall be Plaintiff’s costs in the cause.

27.  The rationale behind the order nisi in paragraph 26(2)  above should be apparent from the reasoning above. In essence, the 1^st Defendant had not properly elucidated the basis upon which the order for the proceedings to continue as if begun by writ was sought. Giving them the full benefit of the doubt, the 3^rd affirmation of YKK was a golden opportunity in which to clearly set out those areas of facts which were disputed and to highlight that in addition to a generalized challenge as to the 1^st Defendant’s mental capacity, a specific defence of undue influence was being pursued. The failure to do this led to the Plaintiff meeting (even in its skeleton submissions filed for this hearing)  only the generalized mental capacity challenge, without being afforded the opportunity to squarely consider allegations of undue influence and what appropriate directions should flow from such framing of the issues.

28.  I thank counsel for their assistance.