INDUSTRIAL AND COMMERCIAL BANK OF CHINA (ASIA) LTD v. TSE CHING

CACV 479/2021

[2022] HKCA 1342

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 479 OF 2021

(ON APPEAL FROM HCMP NO 1619 OF 2016)

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REASONS FOR JUDGMENT

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Hon Chow JA (giving the Reasons for Judgment of the Court):

INTRODUCTION

1.  This is an appeal by the 3^rd Defendant against a costs order made by Deputy High Court Judge M K Liu (“the Judge”)  dated 18 July 2019, whereby the Judge ordered that the costs of the 3^rd Defendant’s application by summons dated 9 July 2018 (“the Summons”)  for an order that the proceedings commenced by the Plaintiff by way of originating summons in HCMP 1619/2016 (“the Action”)  be continued as if the cause or matter had been begun by writ be “in the cause” (“the Costs Order”).  At the conclusion of the hearing of the appeal on 6 September 2022, we allowed the 3^rd Defendant’s appeal with costs, with reasons to be given later.  This we now do.

BACKGROUND FACTS

2.  The Plaintiff is a licensed bank carrying on business in Hong Kong.

3.  The 1^st Defendant was a customer of the Plaintiff and obtained banking facilities from it.  On 21 April 2017, a winding up order was made against the 1^st Defendant.

4.  The 2^nd Defendant is a founder, and former Director, of the 1^st Defendant.  On 2 November 2016, the 2^nd Defendant was declared bankrupt.

5.  The 3^rd Defendant is the wife of another founder and former director of 1^st Defendant.

6.  The 2^nd and 3^rd Defendants executed, or are alleged to have executed, various written guarantees in respect of the 1^st Defendant’s indebtedness to the Plaintiff.  The 3^rd Defendant’s liability to the Plaintiff as the 1^st Defendant’s guarantor is disputed.

7.  On 24 June 2016, the Plaintiff issued an originating summons (“the Originating Summons”)  in the High Court against:

(1)  the 1^st Defendant for payment of the amounts due in respect of banking facilities granted by the Plaintiff to the 1^st Defendant and secured by 2 mortgages over 2 properties referred to as the “Portofino Property” and “Castle Peak Property” (collectively “the Properties”)  dated 29 February 2008 and 31 March 2011 respectively, and possession of the Properties; and

(2)  the 2^nd and 3^rd Defendants for payment of the 1^st Defendant’s outstanding indebtedness to the Plaintiff pursuant to a joint and several guarantee dated 28 March 2011.  By an order of Master Chow dated 23 November 2018, the date of the relevant guarantee referred to in the Originating Summons was amended to 22 January 2016 (“the 2016 Guarantee”).

8.  The 1^st and 2^nd Defendants did not acknowledge service of the Originating Summons served on them.

9.  On 27 September 2016, Master Lai ordered, by consent, that the hearing of the Originating Summons as it related to the 3^rd Defendant be adjourned sine die.

10.  On 22 November 2016, Master Lai made the following orders against the 1^st Defendant in favour of the Plaintiff:

(1)  payment of HK$33,441,104.67 and US$3,512,406.51, being the total sums due to the Plaintiff as at 22 November 2016, together with interest thereon at judgment rate from 23 November 2016 until payment (“the Judgment Debt”); and

(2)  delivery up of vacant possession of the Portofino Property and Castle Peak Property.

11.  In due course, the Properties were sold in 2017 and 2018, and the proceeds of sale were applied to reduce the amounts due and owing to the Plaintiff under the Judgment Debt, leaving outstanding indebtedness of HK$1,073,952.09 and US$1,102,092.23 as at 13 November 2018.

12.  In the meantime, on 9 July 2018, the 3^rd Defendant issued the Summons seeking an order that the proceedings under the Originating Summons be continued as if the cause or matter had been begun by writ.  The basis of the 3^rd Defendant’s application was that there were substantial disputes, including disputes of fact, in respect of 2 grounds of defence or counterclaim which made it appropriate to convert the proceedings into a writ action, namely:

(1)  whether the Plaintiff failed to meet its statutory duties to the 3^rd Defendant in the course of making available financial accommodation and products to the 1^st Defendant and thus she was not liable on the guarantee; and

(2)  whether there was misconduct on the part of the Plaintiff in the sale of the Portofino Property.

13.  In respect of (1), the 3^rd Defendant alleges, inter alia, that (i) the relevant Accumulator Contracts were not authorized by the 1^st Defendant and were not binding on the 1^st Defendant, and (ii)  the Plaintiff and its staff never explained to her the contents of, or witnessed her signature on, any bank documents, including the 2016 Guarantee.  According to the 3^rd Defendant, she signed the signature pages at the direction of the 2^nd Defendant and the 1^st Defendant’s then financial controller (one Mr Chung), and never signed any bank document in front of any bank officer or had any meetings with bank officers (Mr Chow and Ms Yeung)  on (i)  25 February and 28 March 2011 and (ii)  22 January 2016 respectively as alleged by the Plaintiff.

14.  In respect of (2), the 3^rd Defendant contends that a valuation report prepared by Vigers and other valuations relied upon by the Plaintiff for the sale of the Portofino Property were obviously flawed, and that property was sold at a gross undervalue (for HK$48m)  in March 2018, whereas its true value was about HK$76.5m at that time.

15.  The Plaintiff opposed the 3^rd Defendant’s application on the basis that the aforesaid grounds of defence and/or counterclaim raised by the 3^rd Defendant had no substance, and the scope of real factual disputes was narrow and could be dealt with under the originating summons procedure.  The Plaintiff submitted that it would be a waste of time and costs to convert the proceedings into a writ action involving pleadings, discovery and witness statements.

16.  The 3^rd Defendant’s application came before the Judge on 18 July 2019.  At the commencement of the hearing, the Judge expressed to the parties his preliminary view as follows:

“… So, Mr Luxton, my preliminary view is this; now assuming I convert this proceeding to writ proceedings, that would not prevent plaintiff from making an application for summary judgment, the plaintiff can simply adopt the evidence already filed by the plaintiff in that application for summary judgment, and if you are right, in fact, D3 had no arguable defence to the plaintiff[’s] claims, then the plaintiff would … claim summary judgment, which is a final judgment, in that application and there would be no need to go through the trial process.

On the other hand, if you are not correct, there’s some dispute which cannot be determined in a summary way, then in the writ proceedings, the court can give directions, proper directions for the resolution of those disputes in the writ proceedings.”[1]

17.  The Judge then heard submissions from counsel for the Plaintiff and the 3^rd Defendant on his preliminary view, and also on the issue of costs.  Mr Alder submitted on behalf of the 3^rd Defendant that she should have the costs of the application because, amongst other matters, (i)  the 3^rd Defendant had, through her solicitors’ letter of 17 May 2018, invited the Plaintiff to consent to the application to avoid the parties having to incur additional expense and inconvenience, and reserved the right to seek costs on an indemnity basis should the Plaintiff unsuccessfully resist the application, (ii)  the 3^rd Defendant took out the Summons promptly when it became clear that the Plaintiff would not agree to the 3^rd Defendant’s proposal to convert the proceedings into a writ action, (iii)  at an earlier hearing of the Summons on 10 January 2019, Deputy High Court Judge Leung had warned or advised the Plaintiff that the matter was appropriate to continue as if the cause of matter had been begun by writ, and (iv)  the Plaintiff ought to have consented to the application.

18.  The Judge acceded to the 3^rd Defendant’s application, and ordered the proceedings to continue as if the cause or matter had been begun by writ, and gave consequential directions for the filing and service of pleadings.  The Judge did so not because he considered there were substantial disputes of fact or other reasons which made the originating summons procedure inappropriate to resolve the Plaintiff’s claim against the 3^rd Defendant, but because he thought that converting the proceedings into a writ action would not prevent the Plaintiff from making an application for summary judgment.  The Judge considered that if the Plaintiff was correct in its contention that the 3^rd Defendant had no arguable defence to its claim or any part of its claim, the Plaintiff would get summary judgment, and would not have to wait for a long time or incur much more costs in order to get judgment.  On the other hand, if the Plaintiff’s contention was wrong and the Court was of the view that the disputes in the proceedings could only be resolved after hearing live evidence from the witnesses, the Court could give proper directions for the resolution of the disputes in the writ action.  The Judge considered that his decision was a case management decision and neither party would be prejudiced by it.  On the issue of costs, the Judge took the view that his “idea” (see §16 above)  had not been discussed between the parties and had not been put forward by the 3^rd Defendant to the Plaintiff prior to the hearing.  The Judge also took into account the fact that the decision that he was making was a case management decision.  Hence, an order that the costs of the 3^rd Defendant’s application be in the cause was “proper and fair”.

19.  The Judge eventually made the following order (“the Order”):

“1. These proceedings be continued as if the [cause] or matter had been begun by writ;

2. The Plaintiff do file and serve its statement of claim concerning the 3^rd Defendant within 21 days;

3. The 3^rd Defendant do file and serve its Defence (or Defence and Counterclaim)  within 21 days thereafter;

4. The Plaintiff do have leave to file a Reply (or Reply and Defence to Counterclaim)  within 14 days thereafter;

5.  The 3^rd Defendant do have leave to file and serve its Reply to the Plaintiff’s Defence to Counterclaim within 14 days thereafter.”

The Judge further ordered that the costs of the Summons be in the cause.

THE APPEAL

20.  On 1 August 2019, the 3^rd Defendant issued a summons in the court below to apply for leave to appeal against the Costs Order.

21.  The application for leave to appeal was dealt with by the Judge on paper.  On 21 October 2019, the Judge gave a decision (“the Leave Decision”)  refusing to grant leave to appeal.  The Judge’s reasons for refusing leave, as well as his reasons for making the Costs Order, can be seen from §11 of the Leave Decision:

“(1)  In the July Hearing, I have given reasons for the decision. The costs orders concerning D3’s Summons must be viewed in the context of those reasons.

(2)  In the July Hearing, I noted the respective positions of P and D3. I refused to go into the merits of their respective cases, as I was of the view that the July Hearing was not an appropriate occasion for adjudicating their respective cases on merits. My task was to hold the ring between P and D3. In my view, the July Decision has sufficiently taken care the respective interests of P and D3. If P is right and all the matters raised by D3 are not matters of substance, P may get a summary judgment in the writ proceedings without much delay and without incurring much costs. If D3 is correct and the matters put forward by her are genuine factual disputes which would require investigation, D3 would have an opportunity to investigate those matters in the writ proceedings. Both P and D3 would not be prejudiced in this arrangement.

(3)  In the July Hearing, I asked counsel for D3 whether the idea in subparagraph (2)  above had been discussed between the parties prior to the July Hearing. Counsel for D3 referred me to D3’s solicitors’ letter dated 17 May 2018 and paragraph 35 of his skeleton submissions dated 7 January 2019 (‘the January Skeleton’). I was of the view that what had been put down in the said letter and in the said paragraph of the January Skeleton did not reflect the idea as set out in subparagraph (2)  above… Counsel for D3 did not draw my attention to D3’s solicitors’ letter dated 25 April 2018 and paragraphs 36 and 37 of the January Skeleton in the July Hearing. Counsel for D3 also did not say that the idea mentioned in subparagraph (2)  above had been discussed in any previous hearing.

(4)  Looking at D3’s solicitors’ letter dated 25 April 2018 and paragraphs 36 and 37 of the January Skeleton now, I am of the view that the idea in subparagraph (2)  above has not been conveyed or clearly conveyed to P in these documents.

(5)   In these circumstances, I am of the view that the costs order on D3’s Summons is proper and fair. Bearing the principles in [6] and [7] in mind, I am of the view that an appeal based upon the grounds set out in the Draft Notice of Appeal does not have a reasonable prospect of success.”

22.  On 4 November 2019, the 3^rd Defendant issued a summons in the Court of Appeal to renew her application for leave to appeal against the Costs Order.  On 11 October 2021, the Court of Appeal (constituted by Poon CJHC and Barma JA)  granted leave to appeal, for the following reasons:

“Having considered the grounds of appeal, the judge’s reasons for refusing the 3^rd defendant’s application for costs and the parties’ submissions, we are of the view that it is reasonably arguable that the judge erred in not granting costs to the 3^rd defendant, when:

(1)  the plaintiff ought to have given consent to the 3^rd defendant’s request as per the letter of 17 May 2018; and

(2)  the 3^rd defendant succeeded on the Summons which was unreasonably opposed by the plaintiff.”[2]

23.  Pursuant to the leave granted by the Court of Appeal, the 3^rd Defendant served and filed a notice of appeal dated 18 October 2021 (“the Notice of Appeal”).  The 3^rd Defendant relies on the following matters in support of the appeal:

“(1)  The 3^rd Defendant was wholly successful with respect to the Summons dated 9 July 2018 …

(2)  The 3^rd Defendant’s Summons dated 9 July 2018 was, in all respects, proper and reasonable to contest, raise and pursue.

(3)  The 3^rd Defendant’s Summons dated 9 July 2018 was opposed in its entirety by the Plaintiff.

(4)  The skeleton submissions filed on behalf of the Plaintiff were unnecessarily prolix and in the main had no direct relevance to the Summons dated 9 July 2018.

(5)  By letters dated 25 April and 17 May 2018, the 3^rd Defendant invited the Plaintiff to consent to the Summons dated 9 July 2018, but the Plaintiff unreasonably refused without any proper basis.

(6)  The 3^rd Defendant’s Summons dated 9 July 2018 was filed at the first possible opportunity it became apparent that the Plaintiff did not intend to consent to the proceeding being converted to a writ action under Order 28, rule 8 of the Rules of the High Court.

(7)  At the directions hearing on 10 January 2019, Deputy High Court Judge Leung issued the Plaintiff with the plain warning that the originating summons procedure was inappropriate and should continue by way of writ action. Notwithstanding, the Plaintiff failed to take notice of such warning. This caused the hearing before Deputy Judge MK Liu to proceed.

(8)  Counsel for the 3^rd Defendant was not called upon to make oral submissions at the hearing before the Deputy Judge on 18 July 2019 with respect to the Summons dated 9 July 2018.[3]

(9)   Despite having no obligation to do so, on 7 January 2019 the 3^rd Defendant put the Plaintiff on notice that an application for Summary Judgment was available to it if the action was to proceed by way of writ.”

DISCUSSION

(i)  Conversion of proceedings commenced by way of originating summons into a writ action

24.  Order 28, r 4 of the Rules of the High Court (Cap 4A)  provides as follows:

“(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.”

25.  Further, under Order 28, r 8(1)  of the Rules of the High Court:

“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.”

26.  The principles for the court’s exercise of discretion under Order 28, r 8(1)  are not in dispute, and can be found in the judgment of Chu JA given on behalf of the Court of Appeal in Re Estate of Chiu Keung [2020] 3 HKLRD 779:

“[58] Under Order 28, rule 4(1)  of the Rules of the High Court, the court has a wide discretion to dispose of the originating summons summarily where it is satisfied that there are no triable issues. Where there are genuine, substantial factual disputes that cannot be resolved on affidavit evidence, the court may either give direction under rule 4(3)  for evidence to be taken orally, including cross-examination of deponents of the affidavits, or order under rule 8 that the proceedings be continued as if the cause or matter had been begun by writ.

[59]  Counsel have referred us to a number of authorities: Bank of China (Hong Kong)  Limited v Keen Lloyd Resources Limited CACV 1787/2001, 26 February 2002 at [18] to [22]; Ye Hong Ying v Chan Lup Ying [1996] 1 HKLR 255 at 258F-J; Shum Wah Ming v The Estate of Chen King Ngo, deceased & Anor CACV 21/1996, 10 July 1996 at [25], [50] to [53]; Cheney Communications Pte Ltd v Christopher Charles Cheney HCMP 2942/1992, 2 August 1993. In summary, these cases establish that there is no hard and fast rule as to what cases can properly be dealt with by the originating summons procedure. It is not the case that the existence of factual disputes will invariably render the originating summons procedure inappropriate, although it is a factor to be taken into account when exercising the discretion. Other relevant considerations include whether the procedural advantages of an action begun by writ, such as delivery of pleadings and discovery, justify the exercise of the power under Order 28 rule 8 and whether in so ordering the ultimate resolution of the dispute would be significantly delayed. If the issues of fact have been identified and can be properly resolved or the disputes of fact are not central to the court’s determination, the court is entitled to proceed to determine the action without converting it into a writ action. With regard to whether to hear the summons on oral evidence, what the court has to consider, as stipulated in Order 28 rule 4(3), is what is required for the just, expeditious or economical disposal of the proceedings.”

(ii)    Costs only appeal

27.  It is trite that costs are generally in the discretion of the first instance judge.  The Court of Appeal will not disturb an exercise of discretion by the judge as to costs unless the decision of the judge is either wrong in principle or is plainly wrong.  Unless it can be shown that the judge has committed a palpable error in the exercise of the discretion on costs, the mere fact that the Court of Appeal would not have exercised the discretion in the same manner as the judge is not a sufficient ground to warrant interference with the decision of the judge (see Chan Shun Kei v Hong Kong Construction (Hong Kong)  Limited, CACV 192/2014, 7 March 2016, at §22; Poon Ching Man v Lam Hoi Pun [2016] 3 HKLRD 815, at §34).

(iii)   The Judge erred in principle or approach in making the Costs Order

28.  Under Order 28, r 8(1)  of the Rules of the High Court, a judge has a discretion to order any cause or matter begun by originating summons to be continued as if the cause or matter had been begun by writ if it appears to him that the proceedings should for any reason be so continued.  The usual reason for invoking the power of the court under this rule is that there are genuine, substantial factual disputes between the parties that cannot be resolved on affidavit evidence alone.  Even in such a situation, the judge is not bound to convert the proceedings into a writ action, because it may, depending on the circumstances (eg where the relevant factual dispute is a narrow one), be sufficient to direct the deponents or relevant deponents who have filed affidavits/affirmations on the disputed facts to attend court for cross-examination.  There is no express limitation in Order 28, r 8 on the sort of reasons which a judge may regard as a sufficient reason for exercising his powers to convert an action begun by way of an originating summons into a writ action.  Nevertheless, there must be some good or sound reason(s)  before it would be justifiable for the judge to make such an order.  As noted in §18 above, the Judge made the Order because he considered that the Plaintiff could still make an application for summary judgment after the conversion and thus would not have to incur much more costs or wait a long time before getting judgment if the 3^rd Defendant’s grounds of defence and/or counterclaim had no substance as contended by the Plaintiff, while the court could give appropriate directions for the resolution of the disputes in a writ action should it come to the view that the Plaintiff’s claim against the 3^rd Defendant could only be resolved after hearing live evidence from the witnesses.  It does not seem to us that the reason given by the Judge is a good or sound reason to convert the proceedings into a writ action.  In our view, the Judge ought to have regard to the relevant principles for converting proceedings begun by an originating summons into a writ action under Order 28, r 8(1), and asked whether there were substantial disputes of fact (without having to reach a firm view on the merits), or other good reasons, which would make the originating summons procedure inappropriate or unsuitable to resolve the Plaintiff’s claim against the 3^rd Defendant.

29.  On the issue of costs, although the 3^rd Defendant was the successful party in the application before him, the Judge declined to award costs in favour of the 3^rd Defendant, essentially because he took the view that his “idea” (mentioned in §16 above)  had not been discussed between the parties prior the hearing in July 2019, and had not been “conveyed or clearly conveyed to P” by the 3^rd Defendant in correspondence exchanged prior to the hearing.  The Judge also thought that because he was making a case management decision to “hold the ring” between the Plaintiff and 3^rd Defendant, it would be proper and fair to order that the costs of the 3^rd Defendant’s application be in the cause[4].  We have already explained why we do not consider the Judge’s reason for converting the proceedings into a writ action to be a good or sound reason.  We also do not consider the fact that the 3^rd Defendant did not put forward the Judge’s “idea” to the Plaintiff to be a relevant factor against the 3^rd Defendant on the issue of costs.

30.  As for the other factor that the Judge took into account, namely, that he was making a decision on a matter of case management, we consider that factor to be relevant, but not conclusive, in the court’s exercise of discretion on costs.  Under the CJR, all parties to court proceedings and their legal representatives are under a positive duty to assist the Court to further the underlying objectives of the Rules of the High Court, including (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, and (c)  to promote a sense of reasonable proportion and procedural economy in the conduct of proceedings (see Order 1A, r 1(a), (b)  and (c)  of the Rules of the High Court).  Hence, a relevant consideration which the Judge ought to, but apparently did not, take into account was whether the Plaintiff’s opposition to the 3^rd Defendant’s application was reasonable.  In the circumstances, we consider that the Judge erred in principle or approach in making the Costs Order, thereby entitling the Court of Appeal to exercise the court’s discretion on costs afresh.

(iv)   Exercise of discretion on costs

31.  For the purpose of exercising the court’s discretion on costs in the present case, it is not necessary to consider the various matters raised by the 3^rd Defendant in the Notice of Appeal individually.  On the materials presently before us, we consider it to be plain that there are substantial disputes of facts which make it inappropriate or unsuitable for the Plaintiff’s claim against the 3^rd Defendant to be resolved on affidavit evidence alone.  As to whether the Judge should have directed the relevant deponents to attend court for cross examination for the purpose of resolving the factual disputes instead of converting the proceedings into a writ action, the Plaintiff has not appealed against the Order.  Having regard to the nature and extent of the factual disputes, we consider the Order made by the judge to be appropriate.  We also consider that the Plaintiff ought to have consented to the 3^rd Defendant’s application, and its resistance to the Summons was unreasonable in the circumstances.  Accordingly, the discretion on costs in respect of the Summons ought to be exercised in the 3^rd Defendant’s favour.

DISPOSITION

32.  The 3^rd Defendant’s appeal is allowed.  The Costs Order is set aside, and is substituted by an order that the costs of the Summons be to the 3^rd Defendant, to be taxed if not agreed, with certificate for counsel (if necessary).

33.  The 3^rd Defendant shall also have the costs of the appeal, including the costs of the applications for leave to appeal before the Judge and the Court of Appeal, to be summarily assessed.  The 3^rd Defendant shall have leave to file and serve a fresh statement of costs within 7 days from the date of the order, and the Plaintiff shall have leave to file and serve a statement of objections to the 3^rd Defendant’s statement of costs within 7 days thereafter.  Subject to any further directions as may be given, the Court will assess the 3^rd Defendant’s costs summarily without further notice to the parties.