HCA 671/2020
[2023] HKCFI 716
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
ACTION NO 671 OF 2020
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BETWEEN
NG KAM CHEUNG (吳錦祥)
Plaintiff
and
CHU KOON FAT DAVID (朱官發)
Defendant
in his capacity as the administrator of the estate of
Chu Kam Sang (朱金生), deceased,
and in his personal capacity
_____________
Before:
Deputy High Court Judge Le Pichon in Chambers
Date of Hearing:
23 February 2023
Date of Handing Down of Decision:
10 March 2023
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D E C I S I O N
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1. This is the appeal of Chu Koon Fat David (“the defendant”) from the order dated 6 October 2022 of Master Jeffrey Chau dismissing the defendant’s applications (a) to strike out the amended statement of claim (“ASOC”) of Ng Kam Cheung (“the plaintiff”) in these proceedings; (b) for summary judgment on the defendant’s counterclaim. At the conclusion of the hearing, this decision was reserved which I now give.
Background facts
2. The plaintiff came to know the defendant in the 1980s and was introduced to the defendant’s father Chu Kam Sang (“the deceased”) in about 1993.
3. The deceased became the registered owner of a 3-storey village exempted house in Sai Kung in 1992 (“the House”). The deceased lived on the ground and 1st floor of the House with the defendant and his family.
4. In about 1993 or early 1994, the deceased and the defendant asked for a loan of $2 million as a bridging loan for the defendant’s business on the basis that it would be repaid within a short period of time, failing which the deceased would transfer the 2nd floor and the roof of the House (“the Property”) to the plaintiff in lieu of repayment
5. On that basis, the plaintiff lent a total sum of $2 million to the deceased. When the loan was not repaid after several months, the deceased, the defendant and plaintiff sought legal advice and, as a result, the deceased executed a promissory note on 4 October 1994 (“the promissory note”) witnessed by a solicitor.
6. When the plaintiff’s demand for repayment pursuant to the promissory note was not met, he commenced proceedings and obtained judgment in HCA 10091/1994 against the deceased on 2 November 1994.
7. Negotiations for settlement ensued. The deceased and the defendant represented to the plaintiff that the plaintiff and his family should be entitled to live in the Property until it becomes freely transferable to the plaintiff. This culminated in the deceased and the plaintiff entering into a settlement agreement dated 8 April 1995 (“the Agreement”).
8. The Agreement provides as follows:
“ln respect of the litigation of Ng Kam Cheung (“the Plaintiff”) and me, number being High Court Action No. A10091 of 1994, I agree to make the following arrangement with the Plaintiff:
1. The Plaintiff can enjoy the second floor with roof of Ma Yau Tong Chuen village house registered in my name at the Sai Kung Land Registry as Survey District 9 Lot No. 38 (“the village house”) until I make that unit freely transferrable to the Plaintiff.
2. When the Plaintiff requests me to transfer the second floor with roof of the village house to the Plaintiff or the Plaintiff’s nominee(s), I agree upon notice by the Plaintiff to arrange properly within one month, in full settlement of all debt that I owe to the Plaintiff in the aforesaid litigation.
3. The Plaintiff will be wholly responsible for all legal fee, stamp duty of the assignment and one-third of the village house’s land premium.”
9. The plaintiff and his family have been living in the Property since the 1990s. After the deceased passed away on 20 December 1998, the defendant and his family continued to live on the ground floor and 1st floor of the House. In effect, the plaintiff and the defendant are neighbours occupying different floors of the House.
10. Unbeknownst to the plaintiff, letters of administration of the deceased’s estate including the Property were granted to the defendant on 8 January 2008.
11. Also, unbeknownst to the plaintiff, legal title to the Property vested in the defendant under a deed of family arrangement and a vesting assignment on 20 August 2014. That was only discovered by the plaintiff in 2019.
12. On 14 August 2019, the plaintiff gave the defendant written notice pursuant to clause 2 of the Agreement, demanding the transfer of the Property to the plaintiff.
13. When the defendant failed to make the transfer, the plaintiff commenced these proceedings on 15 May 2020 seeking a declaration that the defendant has been a trustee for the plaintiff in respect of the Property since 14 August 2019 and an order for specific performance of the Agreement.
Legal principles
14. The defendant’s strike out application is brought pursuant to O 18, r 19 (1) (a), (b), on the “no reasonable cause of action” or the “frivolous and vexatious” ground.
15. The relevant principles are not controversial and it is common ground that they are summarised in Lau Wing Yan v Pacific Bulk Investments Ltd [2020] HKCFI 769 at §51[1] .
16. While a striking out on the ‘no reasonable cause of action’ ground is determined solely by the allegations in the pleadings when deciding whether a reasonable cause of action is disclosed, that is not the case for the frivolous and vexatious ground. In the latter case, the evidence in its entirety could be considered.
17. For a strike-out based on limitation, section 4 (1) (a) of the Limitation Ordinance, Cap 347 (“LO”) provides that an action founded on simple contract shall not be brought after the expiration of 6 years from the date on which the cause of action accrued.
18. The relevant test to be applied when considering whether a statement of claim should be struck out based on a limitation defence is set out in the judgment of McHugh NPJ in Kensland Realty Limited v Tai, Tang & Chong (2008) 11 HKCFAR 237 (at §153) as follows:
“153. An order striking out the Statement of Claim, which is based on a limitation defence, can only be sustained if that defence is “manifestly and immediately destructive of the Plaintiff’s claim”: Ronex Properties v John Laing Construction Limited [1983] 1 QB 398[2] at 408A; Peconic Industrial Development Limited v Yu Ka Hong [2006] 4 HKC 406 at para. 27. However, once a limitation defence is raised, the onus is on the plaintiff to prove that the cause of action relied upon accrued within the limitation period.”
19. A similar approach is stated in the following passage in McGee on Limitation Periods (9th edition) at §21.007:
“Certainly, it can only be in the most blatant case is that an application under [the provision for striking out pleadings] is appropriate to a limitation defence … The defendant must show that the claimant’s claim is obviously doomed to fail.”
20. However, McGee considers (at §21.008) that to allege that the bringing of the action is an abuse of process of the court will not normally succeed where the only basis is that the claim is time-barred. In his view, it is not as a general proposition an abuse to bring an action on a time-barred claim.
21. If a claim is time-barred, it is liable to be struck out as being frivolous, vexatious or an abuse of the process of the court: Ronex Properties Ltd v John Laing Construction Limited [1983] 1 QB 398 at 408B-D.
22. Section 4(7) of the LO disapplies the six-year limitation period to any claim for specific performance of the contract “except in so far as any provision thereof may be applied by the court by analogy in like manner as the corresponding enactment contained in the Limitation Act 1980 (1980 c. 58 UK) is applied in the English Courts”.
The strike-out application
23. The basis of the defendant’s strike-out application is that the plaintiff’s claim is time-barred. The dispute between the parties centres on the date the plaintiff’s cause of action accrued.
24. It is the defendant’s case that the “oral inquiries and requests” the plaintiff made repeatedly to the defendant from 2008 to 2019 constituted “notice” for the purposes of clause 2 of the Agreement.
25. The pleadings relied on are §§ 14, 14A and 15A of the ASOC:
“14. During the period from 2008 to 2019, the Plaintiff had repeatedly made oral inquiries and requests to the Defendant (who was living downstairs) regarding the transfer the Property to the Plaintiff pursuant to the Agreement.
14A. Despite the Plaintiff’s repeated inquiries and requests, the Defendant took an evasive attitude to the transfer of the Property to the Plaintiff, making excuses and representations that he needed time to raise funds for paying the premium for the ground floor and the first floor of the House (in which he was living with his family at the material times) in order to execute the transfer of the Property to the Plaintiff.
…
15A. Further or alternatively, the Property was registered in the name of the Defendant subject to the Plaintiff’s interest in Property pursuant to the Agreement. At all material times, the Defendant as the legal owner of the Property had knowledge of the Plaintiff’s interest in the Property and/or the Agreement.”
26. Mr Jason Wong, counsel for the defendant, submitted that short of being in writing, “every other element is there comprising a notice: inquire, request, threatening a claim, bringing proceedings, showing of the document, specific request to execute a transfer”. He asked, rhetorically, “what other formality is required except from writing?”
27. These proceedings were commenced on 15 May 2020. The critical date for limitation purposes is to show that the plaintiff’s cause of action accrued prior to 15 May 2014.
28. It is clear from the ASOC that the plaintiff’s claim stems from the fact that the $2 million loan has never been repaid. Upon discovering in 2019 that the defendant had legal title to the Property, the plaintiff served a written notice to exercise the right conferred on him by the Agreement. These proceedings seek specific performance of the defendant’s obligation to transfer the Property to the plaintiff pursuant to the terms of the Agreement.
29. Mr Steven Kwan, counsel for the plaintiff, submitted that as a matter of construction, the wording of clause 2 of the Agreement suggests a two-stage process: the initial step is the making of the request and the second step is the giving of “notice”.
30. I accept that is an interpretation that is perfectly arguable: ‘request’ and ‘notice’ relate to different occurrences and are not synonymous. A ‘request’ does not automatically translate into ‘notice’ within clause 2. Were it otherwise, it would be unnecessary and otiose to stipulate for the giving of ‘notice’.
31. The defendant criticises the plaintiff’s failure to particularise what constitutes a “certain formality” that the word ‘notice’ is said to contemplate. Moreover, there is no plea that, for the purposes of clause 2 of the Agreement, “notice” means written notice.
32. The fact that the plaintiff did not particularise what a ‘certain formality’ comprises matters not. Whatever its content may be, a notice in writing is indisputably ‘notice’ for the purposes of clause 2 of the Agreement. Such a notice avoids protracted argument as to whether a notice given orally amounts to ‘notice’ for the purposes of clause 2 and puts an end to that debate.
33. As pleaded, the oral “inquiries and requests” were made during the period from 2008 to 2019. There are no particulars of when any or each of them was made. There is no reference to any specific occasion of such inquiry/request occurring prior to 15 May 2014 that encompassed all the elements the defendant enumerates.
34. Therefore, even if (for the sake of argument) the defendant’s submission assumed to be correct, it cannot be shown that the plaintiff’s cause of action must have accrued prior to 15 May 2014. On that basis the threshold set out in the Kensland case cannot be met.
35. For those reasons, I do not accept the defendant’s submission that clause 2 of Agreement was triggered by the plaintiff’s repeated inquiries and requests over the 11-year period from 2008 to 2019.
36. It is unnecessary to consider the defendant’s criticisms of the trust plea in §17A of the ASOC[3] . In any event, those criticisms are misplaced. The defendant relied heavily on the case of Lee Kwok Wing v Chung Chuen Hei [2012] 4 HKLRD 917, citing extensively from the judgment DHCJ Lisa Wong SC (as she then was). However, that case is distinguishable on the facts[4] and cannot assist in the present context.
37. Suffice it to say that the plaintiff’s case is that he has an inchoate right or interest in the Property which crystallised upon service of his written notice dated 14 August 2019 on the defendant. As from that moment, the defendant, albeit the legal owner of the Property, was under an obligation to transfer the same to the plaintiff pursuant to the Agreement.
38. Given the above conclusion, the question whether section 4 (7) of the LO applies does not arise as there is no limitation issue. Had it been otherwise, it might have been necessary to delve into the exception to that subsection and its scope.
Summary judgment on the counterclaim
39. The legal principles are well established and as stated in Hong Kong Civil Procedure 2023 at 14/05/1, rule 5(1) should not be resorted to except in a clear case. The reason is set out in the citation set out in the judgment of DHCJ To in Qiyang Limited & Ors v Mei Li Energy Limited & Ors, unrep., HCA 420/2011 (5 March 2013) and reproduced here:
“In most cases in which the defendant might desire to apply for summary judgment on the counterclaim, the plaintiff will have already served his statement of claim; and unless the claim or claims made by the plaintiff can be shown to be unsustainable or not bona fide or wholly unconnected with the defendant’s counterclaim, the defendant may not be able to depose to his belief that there is no defence to his counterclaim or part thereof in respect of which he seeks to apply for summary judgment.”
40. In Qiyang, apart from highlighting the fact that the hurdle which a counterclaimant has to overcome to obtain summary judgment against the defendant under Order 14 rule 5 is higher than that which a plaintiff has to discharge in obtaining judgment against a defendant under Order 14 rule 1, the judge (at §8) went on to explain that the making of the counterclaim presupposes that the plaintiff has a valid claim which constitutes a valid built-in defence to a counterclaim. Hence, the counterclaimant has to show that the plaintiff’s claim is unsustainable or not bona fide or wholly unconnected with the defendant’s counterclaim. Failure to take timely action to strike out the plaintiff’s claim may be treated as an indication that the plaintiff has a valid defence to the counterclaim.
41. In the present case, the counterclaim is inextricably bound up with the main claim. Given the defendant’s unsuccessful attempt to strike-out the ASOC, this application for summary judgment on his counterclaim must also fail.
Order
42. Accordingly, it is ordered that the defendant’s appeal from the Master’s order dated 6 October 2022 (dismissing (1) the defendant’s amended summons to strike-out the ASOC, and (2) the defendant’s summons filed on 25 February 2022 for summary judgment on the counterclaim) be dismissed.
43. It is ordered nisi that the costs of this appeal be to the plaintiff with certificate for 2 counsel, such costs to be summarily assessed and payable forthwith.
44. It is further directed that the plaintiff’s statement of costs be lodged within 7 days of this Decision, the defendant’s objections within 14 days thereafter and the plaintiff’s reply (if any) within 7 days thereafter.
(Doreen Le Pichon)
Mr Steven Kwan, and Ms Charlotte OT Chan (attendance excused), instructed by So & Partners, for the Plaintiff
Mr Jason Wong and Mr Esmond Wong, instructed by Eric Yu & Co., for the Defendant
[1]
“(1) It is only in plain and obvious cases that the Court should exercise its summary power to strike out—the onus to demonstrate this is on the party applying.
(2) There should be no trial on affidavit and disputed facts are to be taken in favour of the party sought to be struck out.
(3) The claim must be obviously unsustainable, the pleadings unarguably bad and that it must be impossible, not just improbable, for the case to succeed before the Court would strike out.
(4) A proceeding is frivolous when it is not capable of reasoned argument, without foundation, or where it cannot possibly succeed. A proceeding is vexatious when it is oppressive and/or lacks bona fides .
(5) To decide that a litigant has been frivolous or vexatious and thus has abused the process of the Court is a serious finding to make, for it will generally involve bad faith on his part and one would expect the discretion to be sparingly exercised.
(6) If an action is not launched with the genuine object of obtaining the relief claimed, but in order to achieve some collateral purpose or for an ulterior motive, that would prima facie be an abuse of process.”
[2] In his judgment, Donaldson LJ opined (at p.404) that he would have thought that “it was absurd to contend that the writ or third-party notice could be struck out as disclosing no cause of action, merely because the defendant may have a defence under the Limitation Acts ... it is trite law that the English Limitation Acts bar the remedy and not the right; and, furthermore, that they do not even have this effect unless and until pleaded … Accordingly, authority apart, I would have unhesitatingly dismissed the application to strike out upon this ground.”
[3] This was to the effect that the defendant, as administrator of the estate of the deceased and/or the registered owner of the Property, has been holding the interest in the Property on trust for the plaintiff at least since 14 August 2019.
[4] In that case, the judge observed (at §35) that there was no indication from the facts whatsoever that the parties had intended that the defendant should hold a half share of the net profits on trust for the plaintiff. To the contrary, the parties fully contemplated that the defendant having received contract sums was entitled to pay such receipts into his own account, mix them with his own money and use it for his own cash flow (albeit subject to a contractual obligation to pay half of profits to the plaintiff). That arrangement was entirely inconsistent with the existence of a trust.