SO SAU LAI CONNIE t/a WING FUNG TRADING CO v. DBS BANK (HONG KONG) LTD

HCA 2807/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2807 OF 2004

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HCMP 1361/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1361 OF 2005

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DECISION

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1.  On 11 January 2017, I handed down Judgment in the above actions (“Judgment”). For easy reference herein, I adopt the abbreviations in the Judgment.

2.  By the Judgment, I dismissed So’s/WF’s claim in HCA2807/ 2004, and granted a costs order nisi that So/WF shall pay DBS’ costs of HCA2807/2004 (including costs of the counterclaim and all costs reserved if any) to be taxed if not agreed on indemnity basis, and that So’s/WF’s own costs in HCA2807/2004 be taxed in accordance with Legal Aid Regulations.  Such costs order nisi had since become absolute.

3.  In respect of HCMP1361/2005, by the Judgment I also found So/WF was liable to repay the Subject TR Loan with interest to DBS pursuant to the WF Letter, WF Agreement and Mortgage, and consequently NH was also liable to pay the Subject TR Loan with interest to DBS pursuant to the Mortgage, and Hui was liable to pay the sum of HK$500,000 with interest to DBS pursuant to the Guarantee. Since DBS had recovered the relevant outstanding indebtedness, so the remaining issues for HCMP1361/ 2005 were the disposal of the Surplus Proceeds paid into court and interest accrued thereon, and also costs.

4.  By the Judgment, I also directed DBS shall within 21 days from 11 January 2017 fix a hearing before this court to deal with the outstanding matters in HCMP1361/2005 with half hour reserved (“Direction”).

5.  On 26 January 2017, DBS filed a summons in HCA2807/2004 and another summons in HCMP1361/2005 (collectively, “Summonses”) for the following reliefs:

(a) NH, So trading as WF and Hui (ie the defendants in HCMP1361/2005) shall pay DBS’ costs in HCMP1361/2005 (including costs of the Summonses and all costs reserved, if any) to be taxed if not agreed on indemnity basis;

(b) the Surplus Proceeds be paid out to DBS’ solicitors in HCMP1361/2005 within 7 days after taxation or agreement on DBS’ costs in HCMP1361/2005 in satisfaction or partial satisfaction of such costs; and

(c) DBS shall return to So’s/WF’s solicitors in HCMP1361/2005 the balance of the Surplus Proceeds (if any) after full satisfaction of its costs.

The hearing of the Summonses came before me on 31 March 2017 (“Hearing”). So made oral submissions on behalf of herself trading as WF and also on behalf of NH. Hui appeared in person, but adopted So’s submissions.

6.  On 27 January 2017, So filed Notice to Act in Person in HCA2807/2004 and in HCMP1361/2005. It transpired her legal aid certificate in HCA2807/2004 and HCMP1361/2005 was discharged on 30 March 2017.

7.  On 7 February 2017, the formal judgments in HCA2807/2004 and HCMP1361/2005 pursuant to the Judgment were perfected and sealed. On the same day, So filed Notice of Appeal against the Judgment in CACV28/2017.

8.  On 20 and 28 March 2017, So filed her affirmations in HCA2807/2004 to oppose the Summonses (“So’s 1^st and 2^nd Affirmations”). In So’s 1^st Affirmation, So said she had applied for legal aid for her appeal in CACV28/2017, and since the disposal of the Surplus Proceeds in HCMP1361/2005 was dependent on the final determination of HCA2807/ 2004, So asked for stay of execution of the Judgment. Further, So complained that DBS failed to “complete the legal process” under the Direction within 21 days as prescribed by the Judgment. In So’s 2^nd Affirmation, she advised that (a) on 27 March 2017 she filed Further Notice of Appeal in CACV28/2017 that there was evidence from the Advising Bank in Germany that the beneficiary of the Subject LC (ie RL) committed fraud in respect of 6 LCs including the Subject LC, and (b) the appeal in CACV28/2017 was pending listing for hearing.

9.  Dealing with the matters raised in So’s 1^st and 2^nd Affirmations and her submissions first, I am unconvinced they posed any hurdle that would prevent DBS from proceeding with the Summonses:

(a) Order 59 rule 13(1)(a) of the Rules of the High Court (“RHC”) provides that “[except] so far as the court below or the Court of Appeal or a single judge may otherwise direct – (a) an appeal shall not operate as a stay of execution or of proceedings under the decision of the court below ……” Hence, the mere lodging of an appeal against the Judgment would not operate as any stay of execution. Unless and until the Judgment is set aside on appeal (if at all), the Judgment was the final determination in HCA2807/2004 and HCMP1361/2005.

So/WF did not condescend to the merits of her appeal. In fact, save for the 1^st and last pages of the Notice of Appeal and of the Further Notice of Appeal in CACV28/2017, their contents (ie the grounds of appeal specified therein) were not placed before this court. I am unable to see how the revelation that RL committed further fraud in respect of other LCs would aid So’s/WF’s case in light of the legal principles discussed in Part V(j) of the Judgment. In light of Order 59 rule 13(1)(a) of the RHC, there was no satisfactory reason for considering any stay of execution.

(b) It transpired that a memorandum of notification that a party (ie So) has applied for legal aid was filed by the Director of Legal Aid (“DLA”) in CACV28/2017 on 10 February 2017. But more than 42 days had elapsed since the filing of such memorandum of notification, so the statutory period of the automatic stay of proceedings under section 15(4) of the Legal Aid Ordinance Cap 91 (“LAO”) had expired (see regulation 7A of the Legal Aid Regulations Cap 91A). In any event, no memorandum of notification under section 15(2)-(4) of the LAO had been filed by the DLA in respect of HCA2807/2004 and HCMP1361/2005, so there was no automatic stay of proceedings under section 15(4) of LAO.

(c) The Direction only required DBS “to fix a date for hearing” to deal with outstanding matters in HCMP1361/2005within 21 days of 11 January 2017 (ie on or before 1 February 2017), but did not require any such hearing to be heard before such deadline. Since the Summonses were filed on 26 January 2017 well before the prescribed deadline, there was no merit to So’s complaint of non-compliance or delay in relation to filing the Summonses (thereby fixing the date for hearing).

(d) So complained against DBS’ solicitors for their late preparation, sealing and service of sealed copy order of the Judgment. However, I am unable to see any material pertinence in respect of such complaint. Insofar as HCA2807/2004 and HCMP1361/ 2005 were concerned, So/WF, Hui and NH well knew the terms of the judgment granted by this court from the Judgment itself. Anyway, So was able to lodge the appeal against the Judgment in CACV28/2017, which in any event were separate proceedings from HCA2807/2004 and HCMP1361/2005.

(e) So further complained against being served with the hearing bundle shortly before the Hearing, and suggested there was insufficient time for her to seek legal advice. Mr Man SC, counsel for DBS, conceded the hearing bundle was served a day later than required under Practice Direction 19.2. However, there was nothing new in the hearing bundle. It comprised pleadings, notice of payment into court, court orders, the Judgment, sealed copy judgment, the Summonses and their supporting affirmations, all of which had been previously served on So/WF, Hui and NH (some of which were filed by So/WF, NH and/or Hui). The other documents in the hearing bundle were facility documents executed by So/WF, Hui and NH in 2004 (which were part of the discovered documents in HCA2807/2004 and HCMP1361/2005 that were canvassed at the trial), and inter-solicitor correspondence in 2006.  I am unable to see how there would be any surprise for So/WF, Hui and NH, especially when they well knew the existence, nature and hearing of the Summonses and So had filed 2 affirmations in opposition.

10.  Turning to the Summonses, since DBS prevailed on the merits in HCA2807/2004 and HCMP1361/2005 under the Judgment, there was no reason why costs in HCMP1361/2005 should not follow event (see Order 62 rule 3(2) of the RHC) on full indemnity basis (see footnote 67 of the Judgment).

11.  As regards the disposal of the Surplus Proceeds, I note that under clause 21 of the Mortgage NH and So agreed the borrower (NH and So) shall be liable for and shall pay on demand “all costs and expenses (including legal fees) incurred by [DBS] in …… enforcing any rights under the Security Documents or in relation to the Property …… to the intent that [DBS] shall be afforded a full and unlimited indemnity in respect thereof and until so repaid such costs, charges, expenses and other sums and interest shall form part of the Obligations and shall have the benefit of the security contained in Clause 3 ……” Clause 3 of the Mortgage provided that the Property (mortgaged to DBS by NH) was charged to provide security for all monies owed to DBS “as well as in respect of all interest, costs, charges and expenses mentioned herein”.

12.  In the circumstances, the Property was charged to provide security for DBS’ costs in HCA2807/2004 and HCMP1361/2005. It was evident from the series of inter-solicitor correspondence in 2006 which eventually led to the payment of the Surplus Proceeds into court that upon sale of the Property DBS wanted to preserve the proceeds in line with the position in the above paragraph pending conclusion of the trial. It was clear DBS contemplated the Surplus Proceeds would go to satisfy its costs in HCA2807/2004 and HCMP1361/2005, which would have been secured by the Property had it not been sold, if it were able to secure costs orders in its favour.

13.  On 15 June 2006, solicitors for So, Hui and NH and solicitors for DBS jointly wrote to inform the court that the Property had been sold and resulted inter alia in the Surplus Proceeds, and that “[DBS] claimed that it is entitled to deduct costs from [the Surplus Proceeds] which the other party disputes. The parties are now in dispute as to who will be entitled to receive the surplus proceeds”. Pursuant to such joint application, on 19 June 2006 Master de Souza ordered the Surplus Proceeds to be paid into court.

14.  As evident from the Judgment, DBS prevailed at the end of the day. DBS also obtained costs orders in HCA2807/2004 and HCMP1361/ 2005 in its favour, so it was entitled to proceed with taxation and recovery of such costs. Given the nature of the 2 sets of legal proceedings, the involvement of counsel and experts as well as the interlocutory procedures and the trial that took place, there was real likelihood that DBS’ eventual agreed/taxed costs might be a substantial portion of or even more than the amount of the Surplus Proceeds, especially when such costs were to be taxed on indemnity basis. In such circumstances and given the clear contemplation that the Surplus Proceeds (derived from the Property that was charged to secure such costs before it was sold) should be used to secure costs liability to DBS should it succeed at trial (which it eventually did), it is entirely appropriate for the Surplus Proceeds to remain in court pending agreement between the parties on such costs or pending completion of the taxation procedure, and then for the eventual agreed/taxed costs to be satisfied by payment out from the Surplus Proceeds to DBS, and for any remaining balance to be paid to NH.

15.  Since DBS was successful on the Summonses filed pursuant to the Direction, costs in respect of such Summonses should follow event.

16.  I therefore grant an order in terms of paragraphs 1-3 of the Summonses save and except that in paragraph 3 thereof the words “Messrs A M Mui & Kwan, solicitors for the 2^nd defendant in HCMP 1361/2005” should be deleted and replaced by “the 1^st defendant in HCMP1361/2005”. The remaining Surplus Proceeds (if any) should be repaid to the mortgagor of the Property and not the borrower.