CLARION PROPERTY MANAGEMENT LTD v. SINO ASCENT CORPORATION LTD AND OTHERS

DCMP 1914/2013

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO 1914 OF 2013

----------------------

----------------------

----------------------

DECISION

----------------------

The parties

1. The plaintiff is the manager of a shopping mall known as Orchid Mall situated at Kwong Fai Building, 85-99, Shek Yam Road, Kwai Chung, New Territories (the “Mall”).  The Mall is sub-divided into 10 shops owned by the 10 defendants.  The plaintiff is also the owner of the common parts of the Mall pursuant to an assignment in 2006 whereby the mortgagee of the Mall,  The Hongkong and Shanghai Banking Corporation Limited, assigned the common parts to the plaintiff to hold the same as trustee for the other owners of the Mall (the “Assignment”).  It should be noted the Assignment was for nil consideration and made on the condition that the plaintiff would become the manager of the Mall.  It is provided therein that if the plaintiff ceases to be the manager, the common parts would have to be assigned to the new manager.

2. The 1^st, 3^rd, 5^th and 6^th defendants are represented by Messrs TH Koo & Associates (TH Koo); the 2^nd defendant by Messrs Poon, Yeung & Li (“PYL”), and the 7^th and 10^th defendants by Messrs Edward Lau, Wong & Lou (“LWL”).  The other defendants are not represented and have not participated in this application.  The participating defendants all oppose the plaintiff’s application vigorously. 

The PI Action

3. In November 2011, the plaintiff received a letter before action from Messrs KM Cheung & Co alleging that its client Madam Chiu Mei Wa sustained personal injuries on 16 October 2010 as a result of an accident that took place in the common parts of the Mall.  Action was subsequently commenced against the plaintiff by Madam Chiu and in September 2012 the plaintiff was served with the statement of claim and statement of damages in HCPI 880/2012 (the “PI Action”). The plaintiff has been defending the PI Action since then.  In a case management hearing of the PI Action in June this year, the issue of indemnity was raised.  The PI master adjourned the PI Action for two months for the plaintiff to deal with the issue of indemnity with the defendants and then report back to the court.  The plaintiff took out the present application in July this year.

4. It is noted that in the Re-Amended Statement of Claim in the PI Action, it was pleaded that the plaintiff was the “registered owner of the common area” of the Mall.  However, the allegations of negligence against the plaintiff bear the hallmarks of an action in occupier’s liability.  It was pleaded that “the [plaintiff] owes duty of care to its visitors and user in respect of dangers due to the state of the Mall or to things done or omitted to be done in that the [plaintiff] has permitted or allowed the construction waste materials as the obstacles placing untidy onto the common area and/or access to [a shop in the Mall.]”  The particulars of negligence include failure to provide sufficient lighting and failure to ensure suitable and safe access.

The plaintiff’s application and the bases of its claims

5. In the heading of this application, the plaintiff states that it was made pursuant to the Sub-Deed of Mutual Covenant in respect of the Mall (the “Sub-DMC”), s 32(2) of the Trustee Ordinance (Cap 29) and s 53(1) of the District Court Ordinance (Cap 336).  There is also a marginal note on the originating application which states that it was made pursuant to Order 62 Rule 31 of the Rules of the District Court (Cap 336H).

6. By the originating summons, the plaintiff claims:-

(a) That all defendants shall contribute to the trust fund in proportional to their undivided shares in the Mall in order to indemnify the plaintiff, as trustee in the PI Action in payment of all lawful remuneration, costs, charges, expenses, damages and interest and all lawful costs and expenses properly and reasonably incurred by the plaintiff in the litigation of the PI Action or other expenses payable thereunder;

(b) That the trust fund be stakeheld for the defendants and all owners of the Mall by the plaintiff’s solicitors, Messrs Raymond Cheung and Chan (“RCC”) be initially made up to HK$711,000 by contribution of HK$1,000 per undivided share to RCC as stakeholder, due on or before 30 September 2013 and thereafter incurring interest at the annual rate of twelve per cent per annum with daily rest, to cover initially the expected damages and costs to be payable; at the conclusion of the PI Action, any surplus to be distributed to the owners in proportion to the undivided shares and any deficit shall be further contributed by the owners in proportion to the undivided shares each owners held;

(c) The payment by RCC of all lawful remuneration, costs, charges, expenses, damages and interest and all lawful costs and expenses properly and reasonably incurred by the plaintiff in the PI Action or other expenses payable thereunder shall be a good and sufficient discharge of the trust fund as stakeheld by RCC;

(d) All costs of these proceedings be to the plaintiff to be assessed on a gross sum basis;

(e) Further and other relief.

7. I set out the plaintiff’s claims almost verbatim above (except for some abbreviations) so that their peculiar nature could be better appreciated.

8. The Sub-DMC may be relevant to the rights and liabilities between the plaintiff and the defendants.  However, its interpretation is hotly contested and there are factual disputes as to whether the present case falls within certain provisions of the Sub-DMC.  There are also serious disputes as to whether the plaintiff itself has fulfilled its duties under the Sub-DMC.  If the basis of the plaintiff’s claim against the defendant is the Sub-DMC, this originating summons could not be the right procedure to enforce it.  The plaintiff has to take out a writ action or third party proceedings under the PI Action.  In any event, I see no provisions in the Sub-DMC which entitle the plaintiff to obtain the reliefs set out above.

9. S 32(2) of the Trustee Ordinance and s 53 of the District Court Ordinance are very general provisions giving the court jurisdiction to deal with question of costs involving trustees.  Order 62 rule 31 deals with taxation only and is simply irrelevant.

The call-over hearing

10. The application was originally fixed before me on 29 August 2013.  Two days before the hearing, RCC, PYL and TH Koo filed a consent summons to adjourn the hearing so that PYL and TH Koo would have 28 days to file affidavits in opposition, RCC would have 28 days to file affidavits in reply, and the hearing be adjourned for 3 hours argument in consultation with counsel diaries.

11. I found this arrangement to be unsatisfactory as the other defendants (including the 7^th and 10^th defendants who are represented by LWL) did not seem to have consented to it and I would like to use the hearing on 29 August to understand the parties’ positions better and indicate to the parties my preliminary observations on the application so that the issues could be properly addressed.  Further, the determination in this application would likely have impact on the proceedings of the PI Action which the time table agreed by the parties would very likely cause delay.

12. At the hearing on 29 August, I ascertained that the only factual dispute on which the parties may file evidence is whether the plaintiff was the manager of the Mall at the time of the accident giving rise to the PI Action, namely 16 October 2010.  Other issues in dispute are matters of law and practice which hardly justify an adjournment of more than 56 days.  I ordered the parties to file evidence within 7 days and thereafter written submissions within another 7 days.

13. At that hearing, I also told the parties my initial observations on the application and expressly warned RCC that they should consider engaging suitable counsel to address me on these issues.

Basic requirements of a Beddoe application

14. The first observation I told the parties was that Order 62 rule 31 is irrelevant and the plaintiff should instead refer to Order 85.  In fact, the written submissions filed by the plaintiff also frame its application as a “Beddoe” application.  I said I expected the relevant commentaries in Hong Kong Civil Procedure 2013 should be thoroughly read when the plaintiff prepared its written submissions.  Yet in the plaintiff’s written submissions subsequently filed, it claims that Order 85 “is applicable only to the administration of the estate of a deceased person and it does not apply to this action.”

15. This is a submission which is as startling as it is wrong.  Order 85 rule 1 provides that:-

“In this Order "administration action" means an action for the administration under the direction of the Court of the estate of a deceased person or for the execution under the direction of the Court of a trust.”

The opening editorial note under O.85 in the Hong Kong Civil Procedure 2013 states that:-

“This Order is identical to O.85 of the English RSC, and deals with actions for the administration of the estate of a deceased person, for the execution of a trust, for the determination of any question arising in the course of administration or in connection with a trust and cognate matters.”

16. It is abundantly clear that O.85 applies to this application.  If RCC has cared to read the commentaries under O.85 in the Hong Kong Civil Procedure 2013, they would find the following passage laying down some fundamental points of law and practice about a Beddoe application (para 85/2/1):-

     In any application made under this Rule, the position and duties of a trustee who applies to the court for directions have to be borne in mind:

“A trustee who is in genuine doubt about the propriety of any contemplated course of action in the exercise of his fiduciary duties and discretions is always entitled to seek proper professional advice and, if so advised, to protect his position by seeking the guidance of the court. If, however, he seeks the approval of the court to an exercise of his discretion and thus surrenders his discretion to the court, he has always to bear in mind that it is of the highest importance that the court should be put into possession of all the material necessary to enable that discretion to be exercised ... Secondly, it should be borne in mind that in exercising its jurisdiction to give directions on a trustee’s application the court is essentially engaged solely in determining what ought to be done in the best interests of the trust estate and not in determining the rights of adversarial parties.” (Per Lord Oliver, in Marley v Mutual Security Merchant Bank & Trust Co. Ltd [1991] 3 All E.R.198 at 201, PC).

17. As explained in the case Chan Gordon v Lee Wai Hing [2011] 2 HKLRD 1029; HCMP1596/2008 (20 April 2011) (at para 13) “all material necessary to enable that discretion to be exercised” would include, but are not limited to, full answers to the following questions:-

(i) What are the strength and weakness of the trsutee’s claim/defence?

(ii) What options are available to cover the trsutee’s costs?

(iii) What are the estimated costs of the claim/defence?

Breaches of the basic requirements

18. I told RCC in no uncertain terms during the hearing on 29 August that I found the less than two pages of counsel opinion exhibited by them in support of their Beddoe application to be seriously wanting in its analysis and advice to enable the court to exercise its Beddoe jurisdiction.  The opinion has a one paragraph discussion on the quantum of Madam Chiu’s claim but no discussion at all on the merits of any possible defence.  Later in its written submission, RCC suggested that “Without relying on counsel’s advice, if any, the Beddoe court can peruse on the pleading and Answer in the Main Action, and to determine whether [the plaintiff] had made out a reasonably arguable case on merits in defending the Main Action.”  I find this approach to be most unconventional and without any reasonable basis.

19. There is also nothing about the costs of litigation to be incurred, nor did RCC ever provide such information to the court, though it mentioned the costs incurred so far.  Costs estimation is important as the court need to consider if the costs to be incurred would be out of proportion to the potential benefits to be gained from the legal action that it is asked to give sanction to the trustee to take or carry on.

20. The counsel opinion exhibited by the plaintiff was necessarily incomplete as it was given on the assumption, as supplied by RCC, that the plaintiff was not the manager of the Mall at the time of the accident.  Obviously RCC has not supplied all the relevant materials to counsel for him to consider this point, which as I shall explain below has great significance in the PI Action as well as this application. 

21. Finally, the counsel opinion, while mentioning possible arbitration proceedings against the insurer and third party proceedings against one of the defendants, did not address the central issue of whether a Beddoe application should be made for the defence of the PI Action.  There was no advice as to which course(s) of action is/are most suitable: arbitration against AXA, third party proceedings, or a Beddoe application?

22. In adjourning the application on 29 August, I have indicated and hoped that the plaintiff should improve his case by supplying a better counsel opinion.  The plaintiff did not do so.  I have little hesitation in saying that the counsel opinion and other materials supplied by the plaintiff fell far short of that required of a proper Beddoe application.  Just on this point alone it would be sufficient for me to dispose of the matter against the plaintiff.

23. However, there are other fundamental defects in the application that may not be cured by a better counsel opinion.  They have been argued in the submissions filed by the parties.  I shall therefore briefly set them out so that the parties know their position better.

Disputes regarding the plaintiff’s faults

24. As is clear from the passage cited above in paragraph 16, the court in hearing a Beddoe application is not to determine the rights of adversary parties.  Hence, where there are allegations of faults against the trustee by the beneficiaries, the court would not make a Beddoe order which has the effect of pre-empting the beneficiaries from raising such allegations unless they are plainly frivolous, without merits and could be easily dismissed at the hearing of the Beddoe application.  The refusal to grant the Beddoe order in such circumstances is not fatal to the plaintiff’s subsequent claim for reimbursement of its costs.  If in the end, the plaintiff is proved to be blameless and has defended the action properly, it could still come back to claim reimbursement for costs properly incurred. (see Chan Gordon, supra)

25. In this case, there are two major (and a number of other) allegations of faults on the part of the plaintiff. First, the defendants allege that the plaintiff was actually the manager at the time of the accident.  Hence, it was not sued as a mere trustee/legal owner of the common parts of the Mall.  It was sued and could only be held liable as the party responsible for the control and management of the common parts of the Mall.  The plaintiff alleges that its management contract was terminated in 2007 and was only reinstated as from 1November 2010, after the date of the accident.  The defendants produced evidence showing that as from August 2010, after the owners meeting voted in favour of reinstating the plaintiff, it had resumed effective control and management of the common parts of the Mall.  They also further ague that even if the plaintiff was not the manager at that time, as trustee of the common parts, it had the fiduciary duty to look after the common parts for the benefits of the defendants.  I do not need to make a definitive ruling on this point and this application is not an occasion for me to do so.  Suffice it for me to say that the defendants’ allegations could not be dismissed out of hand.  In fact, in light of the next point I am going to discuss, I have a hard time accepting the plaintiff’s position.

26. There was a public liability policy covering the accident issued by AXA General Insurance Hong Kong Limited.  It was briefly mentioned in the counsel opinion but the plaintiff did not produce it in evidence.  TH Koo’s clients did.  It was a public liability policy covering the Mall.  The period of insurance was 18September 2010 to 17 September 2011.  The insured included the plaintiff, Clarion Security Service Limited (presumably a company related to the plaintiff) and the Owners’ Committee of Orchid Mall.

27. AXA repudiated this policy on the ground of late notice.  Counsel instructed by RCC was of the view that the plaintiff could commence arbitration proceedings against AXA.

28. This policy which the plaintiff chose not to produce to the court is very significant.  It raises two questions: First, if the plaintiff was not the manager at the time of the accident, why did it procure such an insurance policy to be issued?  Why did it need to insure itself from public liability relating to the Mall as from 18 September 2010?  Second, if AXA could successfully repudiate the policy, who should be held responsible for allowing that to happen?

29. Also, all the defendants ask the plaintiff this question: why did you not pursue AXA (as advised by your counsel) and instead come to the defendants to ask for fund?  The plaintiff’s answers are that:-

(1) arbitration proceedings are very costly, and

(2) after setting up the fund as requested by the plaintiff, the plaintiff will consider using the fund to pursue the arbitration proceedings.

30. These answers are hardly acceptable.  First, I should point out, again by referring to the principles set out in paragraph 16 above, under the duty to supply the court with all necessary information, the plaintiff should have produced the policy to the court with a full analysis on the merits, costs and other issues related to the proposed arbitration proceedings.  As a trustee for the defendants, I find it hard to accept that the plaintiff has fulfilled its duty by dismissing this course of action with a casual and baseless remark that it was too costly to do so.  In this application, the plaintiff is faced with 10 defendants.  It has to produce 10 sets of materials.  Each defendant has the right to object and could be expected to vigorously object the application on various grounds.  In the proposed arbitration, there is only one issue (of late notice) with one party.  How the plaintiff could have formed the view that the arbitration is more costly than this application is baffling.  The suggestion that a fund should first be ordered to be set up before the plaintiff decides whether to pursue the arbitration is against all principles pertaining to Beddoe application.

Other problems

31. The above has set out more than ample grounds for me to dismiss the plaintiff’s application.  There are other errors in the plaintiff’s submissions that I do not deem necessary to set out and deal with in full.  Yet I would like to conclude with the observation that the reliefs claimed by the plaintiff as set out in paragraph 6 above are, as contended by all the defendants, novel and without precedent.  The plaintiff asks not for its costs to be reimbursed from the trust property, but for a fund to be set up which would effectively be administered by RCC, a stranger to the trust, instead of the plaintiff.  The fund will cover not only costs but “all lawful remuneration, costs, charges, expenses etc” incurred by the plaintiff.  What the “lawful remuneration, charges and expenses” cover is nowhere explained in the application.  What the “twelve per cent per annum with daily rest” refers to is another baffling feature in this application.  The provision that “any deficit shall be further contributed by the owners” is tantamount to giving a signed blank cheque to RCC. I do not think the court has jurisdiction to grant such reliefs.

Conclusion and costs

32. The plaintiff’s application is dismissed with costs.

33. I have asked all parties to submit a statement of costs for gross sum assessment.  The plaintiff claims a total of HK$153,430.  LWL’s clients claim HK$65,778.  PYL’s clients claim HK$64,100.  TH Koo’s clients, who have made the most extensive submissions, claim HK$88,884.  In view of the total lack of merits of the plaintiff’s application, the amount of costs it claimed compared to the defendants’ and the relatively low charging rates adopted by the defendants (no more than HK$2,600 an hour), I shall allow the defendants’ claim of costs in full.