LAM CHI MING v. LEUNG HOP FOOK AND OTHERS

HCA 1590/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1590 OF 2011

______________________

BETWEEN

______________________

_______________________________

REASONS FOR DECISION

_______________________________

The Application

1.  There are 2 contested applications before me today:

a. 2^nd defendant’s summons dated 12 June 2012 for leave to file and serve the Defence and Counterclaim out of time, the deadline being on 1 November 2011; and

b. The plaintiff’s summons dated 24 August 2012 for leave to file and serve an Affirmation in Reply (“the supplemental affirmation”) out of time, the deadline to take out this summons being on20 August 2012.

2.  Mr. L. Cheung, counsel acts for the plaintiff and Mr. Tony Ko, counsel acts for the 2^nd defendant.  Mr. Yeung acts for the 3^rd defendant and he tells this court that he will take a neutral position in these applications.

The disputes between the plaintiff and the 1^st defendant and the 2^nd defendant

3.  The facts leading to this Action are rather convoluted.  I shall set them out briefly.

4.  The disputes in the Action arose out of a Tomlin Order dated 16 February 2011 entered in two High Court Actions, viz. HCMP 1972 of 2007 and HCA 96 of 2008, consolidated by a court order dated 21 October 2008 wherein the plaintiff, as the executor of an estate, claimed against the 1^st and the 2^nd defendants over certain interests in Lot No. 642 in Ma Wan and the building thereon comprised of ground floor, the first floor and the second floor known as No. 101 Ma Wan Main Street Village South Man Wan, New Territories, Hong Kong, the property in question as set out in the Schedule of the Tomlin Order being the roof and the 2^nd floor (“the property”).  The parties had attempted mediation and they signed an agreement for settlement on or about 18 January 2011.  The mediator had also signed the settlement agreement.  They had incorporated their agreed settlement in a Tomlin Order endorsed by the Court in the usual terms that further proceedings should be stayed except for the purpose of carrying out the terms of the Order.[1]  The Tomlin Order was signed by the solicitors acting for the plaintiff and the defendants respectively.[2]

5.  The Tomlin Order recorded the agreement between the plaintiff and the defendants, inter alia, that the defendants agreed to transfer the title and ownership of the property to the plaintiff or the designated representative of the plaintiff, who had to pay the 1^st defendant $100,000.00 on the completion date scheduled on 31 March 2011.

6.  The plaintiff now claims against the 1^st defendant and the 2^nd defendant for breach of the Tomlin Order because they had failed to transfer the property to the plaintiff in accordance with the terms of the Tomlin Order.  In fact, the plaintiff alleged in the Statement of claim that the 2^nd defendant had entered into a Chinese Agreement dated 3 January 2011 with the 3^rd defendant for the sale of the first floor of the property to the 3^rd defendant (“the Chinese Agreement”).  The plaintiff claims for specific performance of the Tomlin Order or alternatively damages for the breach of the Tomlin Order.

7.  In this action, the plaintiff had also claimed against the 3^rd defendant for vacation of the registration of the Chinese Agreement at the Lands Office and for a declaration that the plaintiff’s interest in the property ranks priority over the 3^rd defendant’s interest under the Chinese Agreement.[3]

The plaintiff’s summons

8.  It will be convenient to deal with the plaintiff’s summons first.

9.  The 2^nd defendant opposes the plaintiff’s application on the following grounds:

a. It is in breach of the direction given by Master Ho that such application must be made at least 14 days before the hearing date to be supported by reasons on affirmation, the present application being 11 days before this hearing today;

b. There is no affirmation to support the application;

c. Under Order 32 rule 11A(4), the law requires the plaintiff to satisfy that there are exceptional circumstances making it desirable that further evidence should be adduced and there are no exceptional circumstances from the plaintiff to support his application.

10.  The plaintiff’s counsel, Mr. Cheung had on 31 August 2012 sent his skeleton submissions, which I received on 1 September 2012.  In it, there is no submission on the late application for leave to file and serve the supplemental affirmation.  

11.  I accept Mr. Ko’s argument.  The Honourable Mr. Justice Saunders in his judgment Fortune Asset Development Limited v. De Monsa Investments Limited  HCA 167/2009 had remarked:

“10. I accept Ms Wong’s argument that the application must be dealt with under O 32 r 11A(4). The mere fact that the order of 15 April 2009, provided that no further affirmation should be filed without leave of the Court cannot, and should not, be seen to relieve either party from the plain requirements of O 32 r 11A(4). It is clear from that rule that one of the objectives of Civil Justice Reform is to ensure that parties to litigation are properly notified of the grounds upon which applications are being made for the earliest possible opportunity, and to prevent last-minute evidence being put in, save in exceptional circumstances.

11. To allow last-minute evidence, save in exceptional circumstances, would not be to ensure that a case is dealt with as expeditiously as is reasonably practicable: see O 1A r 1(b); nor would it ensure fairness between the parties: O 1A r 1(d). ”

12.  I dismiss the plaintiff’s summons with costs and reject the plaintiff’s supplemental affirmation.

The 2^nd defendant’s summons for extension of time to file and serve Defence and Counterclaim

13.  I shall now deal with the 2^nd defendant’s summons for extension of time to file and serve her Defence and Counterclaim.

14.  Mr. Ko submits the reasons below in support of the 2^nd  defendant’s application:

a. Although there has been a long delay, the 2^nd defendant was influenced by her solicitor’s advice that she did not have a good defence, such advice is considered wrong by her present solicitor, Mr. Wilson Yeung.[4]

b. By reference to the White Book 2012 at paragraph 3/5/2, the rules give the court wide power of discretion to allow extension of time on reasons that the court is satisfied and that the court will rarely, except under special circumstances, deny the defendant’s right to defend because of a procedural default.^[5]

c. The plaintiff has not applied for default judgment against the 2^nd defendant.

d. The matter has not been set down for trial.  Therefore there is no interference with any milestone date.

e. The 2^nd defendant has merits in her defence as shown in her Defence and Counterclaim annexed to the summons.  The plaintiff’s case is weak against her.^[6]

f. There is no prejudice to the plaintiff which cannot be compensated by costs if leave is granted to the 2^nd defendant to file and serve her Defence and Counterclaim.

15.  Mr. Cheung’s major challenges to Mr. Ko’s arguments are:

a. Substantial delay; and

b. 2^nd defendant has no merit in her defence and she only repeats her defence in the consolidated action, which had been stayed by the Tomlin Order.

Discussion - Delay

16.  On the issue of delay, the court has to take into consideration the circumstances as provided under Order 2 rule 5, Rules of the High Court, which provides:

5. Relief from sanctions (O. 2, r. 5)

(1) On an application for relief from any sanction imposed for a failure to comply with any rule or court order, the Court shall consider all the circumstances including-

(a) the interests of the administration of justice;

(b) whether the application for relief has been made promptly;

(c) whether the failure to comply was intentional;

(d) whether there is a good explanation for the failure to comply;

(e) the extent to which the party in default has complied with other rules and court orders;

(f) whether the failure to comply was caused by the party in default or his legal representative;

(g) in the case where the party in default is not legally represented, whether he was unaware of the rule or court order, or if he was aware of it, whether he was able to comply with it without legal assistance;

(h) whether the trial date or the likely trial date can still be met if relief is granted;

(i) the effect which the failure to comply had on each party; and

(j) the effect which the granting of relief would have on each party.

17.  I am ready to accept Mr. Ko’s submissions on the issue of delay stated above.  All these circumstances, coupled with the fact that the plaintiff had allowed the matter to be at abeyance without applying for default judgment will militate against the plaintiff’s opposition to this application.  I do not accept the reason proffered by the plaintiff that since 2^nd defendant was prepared to be his witness, he would delay the application for default judgment against her. If the 2^nd defendant agreed to be his witness, she should not mind having a default judgment against her since she would have to deliver up possession of the property to the plaintiff in any event.  

18.  Therefore, on the issue of delay alone, I will grant leave to the 2^nd defendant to defend.  However, the plaintiff has raised another reason of “no merit in the Defence” in his opposition, which I must consider before I can make my final determination.

Discussion  –  No merit

19.  Under the CJR, the court has to assume an active case management under the powers bestowed upon it under Order 1B, rule 1:

“1. Court's general powers of management (O. 1B, r. 1)

(1) The list of powers in this rule is in addition to and not in substitution for any powers given to the Court by any other rule or practice direction or by any other enactment or any powers it may otherwise have.

(2) Except where these rules provide otherwise, the Court may by order-

(a) extend or shorten the time for compliance with any rule, court order or practice direction (even if an application for extension is made after the time for compliance has expired);

(k) dismiss or give judgment on a claim after a decision on a preliminary issue;

(l) take any other step or make any other order for the purpose of managing the case and furthering the underlying objectives set out in Order 1A. ”

20.  Under Order 18 rule 19, the court may, on application or on its own motion, strike out a pleading, which has no reasonable cause of action or defence.  

“19. Striking out pleadings and indorsements

(O. 18, r. 19)

(1) The Court may, either of its own motion or on application, at any stage of the proceedings order to be struck out or amended any pleading or the indorsement of any writ in the action, or anything in any pleading or in the indorsement, on the ground that- (L. N. 152 of 2008)

(a) it discloses no reasonable cause of action or defence, as the case may be; or

(b) it is scandalous, frivolous or vexatious; or

(c) it may prejudice, embarrass or delay the fair trial of the action; or

(d) it is otherwise an abuse of the process of the court;

and may order the action to be stayed or dismissed or judgment to be entered accordingly, as the case may be. ”

21.  It is therefore apparent that if the Defence proposed to be served by the 2^nd defendant on the plaintiff has no reasonable defence, it should be struck out.  In such event, it is only common sense that I should not give leave to the 2^nd defendant to serve the proposed Defence.

22.  Mr. Ko argues that the 2^nd defendant has merits in her Defence.  First of all, he says that the plaintiff’s case against the 2^nd defendant is extremely dubious.  He disputes that there were implied terms in the settlement agreement that the 2^nd defendant had the obligation of full and frank disclosure; that she had to clear the claims and interests in the property; that she had to give good title and show good title of the property.  He has made a distinction on the obligations of the vendor in a normal sale and purchase of a property with the obligations of the 2^nd defendant in the settlement agreement.[7]

23.  I have reservations on Mr. Ko’s arguments on the law of implied terms myself.  However, I consider that it is not necessary to deal with these issues here because the 2^nd defendant does not dispute that she has not delivered possession of the property in accordance with the terms of the Tomlin Order.  This is a clear breach of the Tomlin Order.  Even if Mr. Ko is correct in his analysis of the law on implied term, I do not consider weakness of the plaintiff’s case will assist him if the 2^nd defendant’s Defence has no reasonable defence.  The 2^nd defendant can take out an application to strike out the plaintiff’s claim under Order 18 rule 19 for there being no reasonable cause of action against her.  If the plaintiff is unable to prove his case, the court may refuse to give judgment to the plaintiff even if the 2^nd defendant has served no Defence.  In Fins Development Limited & another v. Tang Yuen Ting  HCA 542/2009, the plaintiffs claimed against the defendant for misappropriation of the plaintiffs’ fund by depositing the plaintiffs’ cheques into the defendant’s own personal account.  The defendant was absent at the trial and she was also made bankrupt.  The plaintiffs proceeded to trial and only called one witness, whom the Judge found to be an incredible witness and the Judge ultimately dismissed the plaintiffs’ claims.[8]

24.  I have enquired with Mr. Ko in court whether he will argue that the law will allow the 2^nd defendant to agree to deliver up possession of the property to the plaintiff on the one hand, and on the other hand to conceal the fact that she had already entered into an agreement or a conditional agreement to sell the property to the 3^rd defendant.  His answer is that because the 2^nd defendant took the view that she had only sold the property to the 3^rd defendant subject to the condition that she had won the case and that she was entitled to retain the property, she considered that it was not necessary to disclose the facts to the plaintiff at the time when the settlement agreement was signed by her.

25.  Mr. Ko’s next argument is that the 2^nd defendant had merits in her Defence.  In the Defence and Counterclaim annexed with the summons, the 2^nd defendant referred to the Amended Defence and Counterclaim in the Consolidated Action, which had been settled by way of the Tomlin Order.  Therefore, Mr. Cheung comments that the Defence is merely a repetition of her Defence in the Consolidated Actions, which should not be allowed to be revived through the back door.  I agree.  The Consolidated Actions have, by consent of the parties, been stayed by the Tomlin Order and cannot be proceeded with without leave of the court.  No leave has been granted by the court.  The 2^nd defendant is debarred by her own agreement.

26.  The 2^nd defendant has raised new issue of conspiracy of the parties at the mediation to mislead the court in that the 1^st defendant was mentally incapacitated and the Tomlin Order was signed by the then solicitors for the 1^st and the 2^nd defendants without proper instructions of the 1^st defendant and the Tomlin Order together with the settlement agreement were all void, ineffective and invalid.[9]

27.  The difficulty that the 2^nd defendant will face on this conspiracy issue is that she is not entitled to rely upon 1^st defendant’s mental illness to set aside the Settlement Agreement and vitiate the Tomlin Order whereas the 1^st defendant has not made the application himself or through his guardian ad litum.  Mr. Cheung further submits that it will be an abuse of the process for the 2^nd defendant  pleaded as one of the “Misleading parties” to take the advantage and  challenge the validity of the Tomlin Order.  Mr. Ko has no dispute over this trite legal principle.

28.  Coming to this stage of the hearing, Mr. Ko now asks this court to adjourn the hearing to another date without making an order one way or the other, for the purpose of the 1^st defendant to take out the application to set aside the Tomlin Order.  The solicitors acting for the 2^nd defendant has taken out an application for an order for guardian ad litum of the 1^st defendant on 1 September 2012.  Mr. Ko submits that if the solicitors for the 1^st defendant will advise the 1^st defendant to take out the application along the lines as pleaded in the Defence and Counterclaim, it may save the deficiencies in the 2^nd defendant’s Defence.

29.  Mr. Cheung opposes this application for adjournment of this hearing.  He submits that the claims of the 1^st defendant and those of the 2^nd defendant can be dealt with separately.  He concentrates his opposition on the merits of the 2^nd defendant’s Defence.  He now confirms to this court that if the 2^nd defendant’s Defence is not allowed to be served, the court should enter default judgment against 2^nd defendant.

30.  I must admit that I am rather taken by surprise by this sudden development of application for an adjournment.  Having considered all the circumstances before me today, I consider that on the Defence annexed to the summons, the 2^nd defendant has not been able to satisfy me that she has the reasonable defence to resist the plaintiff’s claim for specific performance of the Tomlin Order.  I agree with Mr. Cheung that I should only consider the 2^nd defendant’s case today, without taking into consideration what the 1^st defendant will take his case further.  My decision today on 2^nd defendant’s application should not affect the 1^st defendant’s position in relation to his challenge of the validity of the Tomlin Order along the lines taken by the 2^nd defendant in her Defence.

31.  I therefore refuse to adjourn this matter and I find that the 2^nd defendant has disclosed no reasonable defence in her Defence and Counterclaim, which if allowed to be served, should be struck out by the court under Order 18 rule 19. As such, I refuse leave to the 2^nd defendant to file and serve her Defence and Counterclaim.  Her application is dismissed with costs.  I will enter judgment in favour of the plaintiff against the 2^nd defendant.

32.  As to the costs for the summonses, as between the plaintiff and the 2^nd defendant, the costs of the plaintiff’s summons for leave to adduce further evidence has been dismissed and costs should be given to the 2^nd defendant.  As to the costs of the 2^nd defendant’s application for leave to file and serve her Defence and Counterclaim, the costs should be given to the plaintiff, with certificate for counsel for this hearing, and the costs reserved, to be summarily assessed.  Taking the global assessment, the net costs to the plaintiff (having reduced the costs of the plaintiff’s summons to the 2^nd defendant, amounting to $1,500) is $40,000.00.  

33.  As to the costs for the 3^rd defendant, there be costs of $1,500 to be paid by the plaintiff to the 3^rd defendant for the plaintiff’s summons for leave to file and serve the supplemental affirmation.  The 2^nd defendant shall pay $8,000 to the 3^rd defendant for the costs of the 2^nd defendant’s summons.

34.  The costs above shall be paid within 14 days from the date hereof.

35.  The court now makes an order in terms of the following:

a. The plaintiff’s summons be dismissed with costs, assessed at $1,500 to the 2^nd defendant and $1,500 to the 3^rd defendant respectively;

b. The 2^nd defendant’s summons be dismissed with costs assessed at $41,500 to the plaintiff, with the net costs after setting off the defendant’s costs, at $40,000, and $8,000 to the 3^rd defendant;

c. All costs shall be paid within 14 days from the date hereof;

d. Judgment be entered against the 2^nd defendant;

e. Costs of the action be to the plaintiff against the 2^nd defendant, to be taxed, if not agreed.