XCHRX CHAN HOW CHUEN, STEPHEN v. CHAN HAU CHEONG

1996, MP No. 2436

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 2436 OF 1996

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J U D G M E N T

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1. This is an appeal against the Order of Master Poon given on 4th January, 1999.

2. The formal order of the Master had not yet been drawn up. However I understand that before the Master the Plaintiff had submitted to him a draft order which appeared at page 218 of the bundle before me. I also understand that the Master had in fact made the order in term of the draft. The respondent (plaintiff) did not raise any objection to my hearing this appeal before the perfection of the Order, I would entertain this appeal on the assumed basis that the order had been perfected as per the draft.

3. The appellant (defendant) took issue with paragraph 1 of the Order. Mr. Mumford appearing before me did not contend that no discovery of the documents listed in this paragraph ought to be given at all. Rather the thrust of his submission was that the period allowed by the Master was too short. He pointed to the fact that although it was within his client's power to produce the bank statements, in practice the bank may not be able to give his client the copy bank statement requested for within the 7 days. He therefore asked me to extend the time allowed for giving discovery of the documents. On this point, counsel for the respondent has not taken any strong stance. In fact, he told me that so far his client had not given any written request for the document. No doubt the fact that the appellant had appealed against the order was one reason for no such request having been made. Having regard to the history of this matter and the fact that the defendant had condescended to a lot of information on the rents received by him, I do not think that there was any great urgency for the plaintiff to have discovery of the documents, although I do appreciate that the documents were required for the purpose of the plaintiff's verification of the account given by the defendant so far. In the circumstances, I would vary paragraph 1 of the Order so that the defendant would have 14 days to supply the documents. I take the view that the Defendant had had ample time to ask his banks for the copy bank statements and of course if there is to be any circumstances beyond his control which makes it impossible for him to comply with the Order, he can always apply under Order 3 for an extension of time. For this reason, I do not think that it is necessary for me to make any express provision in the Order allowing him to apply for extension of time. I think that any such express provision is unnecessary and may lead one to think that this court would encourage the application for extension.

4. In relation to paragraph 2 of the order, the main complaint of the appellant was that the Master had in fact given no direction for the taking of the account. I agree. In fact I am of the view that the defendant had on more than one occasion given information on affidavit as to the amount of rent he had received from the tenants. He had also given particulars as to the names of the tenants, the premises, the period for which rents had been collected by him and also the total amount he had collected in respect of each of the premises. I could not see how it could be said that the defendant had not rendered any account of the rent he received. However the plaintiff complained that the account given by the defendant so far did not include any information on the dates on which the individual sums were received. This is no doubt important, as the defendant would be liable for interest for the amount he received since the date of the receipt. Alternatively, if the defendant is called upon to account for the profit he derived from the amount he received, the dates of the receipt of the various sums would be material. Accordingly I am prepared to order that the defendant to give an account of the amount he received and to avoid further argument or misunderstanding, I would also give directions on the way that the account is to be taken as set out in the draft handed up to me this morning. I would add that in the Form of account set out in Atkin, there is a section dealing with disbursement. I understand that it is common ground that the defendant did not claim any disbursement other than the amount of $369,473 which will be dealt with in separately in this Order. Hence the fact that the defendant did not make any separate claim for disbursement in the account is not to be taken as any waiver of the amount of disbursement claimed.

5. In relation to the order of interim payment in the sum of $1.061,300, I would observe that this figure would represent what the Defendant had admitted in his affirmation of 23rd December, 1998 as the amount of rent which he had received from various tenants of the property of No. 38-40 Ko Shing Street. The Plaintiff did not agree that the actual amount received by him was just this figure. Indeed, it is to be observed in an earlier affirmations filed by the Defendant, the Defendant had admitted having received the sum of $1,077,800 (see his affirmation of 23rd June, 1997). However there could be no dispute that the sum of $1,061,300 was the minimum amount which the Defendant would be liable to account to the Plaintiff on account of the rent he had actually received.

6. The Defendant however said that he ought not to be asked to make payment of this minimum figure admitted by him for 2 reasons. First, he said that he had also made some payment on behalf of the estate. He gave particulars of these sums paid by him totaling to $369,473 in his affirmation of 23rd December, 1998. It is fair to say that in giving the figures, the Defendant had not produced any evidence to support his contention that the amount was in fact paid. There was certainly nothing produced by way of receipt or invoices to support any of the payment. However in view of the fact that what the plaintiff was asking for at this stage was only interim payment, counsel for the Plaintiff had indicated that the Plaintiff was prepared to make full allowance of this amount claimed and was prepared to allow this sum to be deducted from the sum of $1,061,300 for the purpose of the claim for interim payment.

7. The 2nd ground for resisting the order for the payment of this sum was that, the Defendant contended that as he was a beneficiary of the 2 estates, he should be entitled to set off the amount he owed to the estate from his entitlement from the estate. I do not think that set off is open to the defendant. At this moment the administration of the estates had not yet been completed. The Defendant does not have any specific claim for any sum from the estate.

8. At one stage the Defendant sought to argue that in view of his personal circumstances, there ought to be a stay of execution of the amount of interim payment. In his affirmation of 13th January, 1999, he said that since the financial crisis, his business had dropped substantially. His income for the past 12 months was only about $240,000 which was just sufficient to cover his household expenses and rent. He had cash of about $1.5 million part of which was required for the cash flow of his business.

9. On his own admission, I feel that I am bound to reject any application for stay of execution for any interim payment in relation to the rents he had received. It must be remembered that his liability for account on this head arose because of the actual sum he had received from the tenants. He thus had funds in his hand which should belong to the estates. I do not think it is right to stay the execution of the interim payment order when it is plain that the reason for doing so is to enable him to use the funds in his hand for the purpose of his own business.

10. Accordingly I will order that the defendant do pay the plaintiff the sum of HK$691,827 as interim payment on account of the sum payable in respect of the sums received by the defendant from the tenants of the premises of N. 38-40 Ko Shing Street. I will also direct that the defendant shall also pay interest on this sum at judgment rate from 12th November, 1996 being the date of the order of Master Jones.

11. There would of course be an order that the Defendant be ordered to pay the plaintiff the amount found due on the taking of the account.

12. In relation to the claim for interim payment in respect of the Defendant's use and occupation of certain parts of the premises at no. 38-40 Ko Shing Street, the defendant submitted that (1) there was evidence to show that the rate of the mesne profit in respect of the premises he occupied was only $9000 per month and not the figures as suggested in the valuation report submitted by the plaintiff, (2) there ought to be an allowance for the fact that the defendant did not occupy the whole of those premises as part of the premises used by him was in fact occupied by goods and stocks belonging to the father's estate. On the defendant's case, the deceased's father's goods had taken up about 1/3 of the space.

13. While the plaintiff agreed that some of the deceased's goods were kept in the premises occupied by the Defendant, the plaintiff's case was that they were there because the defendant had refused the plaintiff access to collect them. If this be so, then the defendant could hardly be allowed any deduction of the mesne profit on account of the presence of the goods which he wrongfully detained. The defendant's case was of course quite different. The defendant would contend that the goods were left with him as an involuntary bailee. There was thus a dispute on facts. Furthermore the plaintiff said that the quantity of goods left was relatively small and could not have occupied 1/3 of the space. This is again an area of dispute.

14. I must say that I am extremely doubtful as to whether the goods left behind by the deceased could take up as much as 1/3 of the space. However bearing in mind that I am considering a question of interim payment where I am concerned with deciding what is the minimum figure which was due by the defendant to the plaintiff, I am prepared to award a figure on the basis that 1/3 of the space was in fact occupied by the deceased's goods. On this basis the interim payment figure would be $2,246,150. I reject any suggestion that the rate of mesne profit should only be $9000 per month. I accept the explanation that that figure of $9000 was merely a figure of internal accounting between the 2 deceased and did not represent the commercial rental value of the premises. The defendant having decided not to contest the valuation report submitted by the plaintiff, I am of the view that it is perfectly justifiable that the defendant be ordered to account for the mesne profit of his occupation on the basis of the expert valuation evidence before the court.

15. The Plaintiff was prepared to agree to a stay of execution of the interim payment of the mesne profit until the distribution of the estate, I will thus also make an order that the payment of the sum of $2,246,150 be stayed until the distribution of the estate or until further order.

16. It is obvious that there are 3 main issues between the parties which would require the determination of the Court. They are, (1) the amount of deduction which the defendant was entitled to make on account of money he had paid on behalf of the estates or for the benefit of the estates, (2) the amount of mesne profit he is liable to pay on account of his use and occupation of the premises belonging to the estates, and (3) the amount of rents he had collected on behalf of the estates. The parties had agreed that I should give directions for the determination of these issues. I will thus direct that pleading be filed on these issues. The statement of claim is to be filed within 21 days from the date of the service of the account by the Defendant. The defence is to be served within 21 days from the statement of claim and reply is to be served within 14 days thereafter. There be an exchange of lists of documents within 14 days from the date of the Reply and inspection of the documents to be done within 14 days of the lists.

17. I will also give the parties liberty to apply.