KWAN YING KUEN ERIC v. YAU LEONG SAU AND OTHERS

DCCJ3936/2013

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 3936 OF 2013

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DECISION

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The applications

1.  There are four applications before the court.  The first three summonses were taken out by the plaintiff.  The last one was taken out by the defendants.  They are as follows:-

(a) an application for summary judgment by amended summons (“the Summary Summons”) dated 9 July 2014 taken out under Order 14 of the Rules of the District Court (“the DCR”);

(b) an application for striking out the Counterclaim by summons (“the Striking Out Summons”) dated 9 July 2014 pursuant to Order 18 Rule 19 of the DCR;

(c) an application for further and better particulars of the Counterclaim by summons (“the FBP Summons”) dated 29 May 2014 pursuant to Order 18 Rule 12 of DCR; and

(d) an application for amendment of the Defence and Counterclaim by summons (“the Amendment Summons”) dated 26 August 2014 under Order 20 of DCR.

Background facts leading to the applications

2.  The plaintiff was a partner of the 3^rd defendant.  On 1 July 2011, he ceased to be a partner and became a consultant of the 3^rd defendant.  The plaintiff left the 3^rd defendant on 29 February 2012.

3.  The 1^st defendant and the 2^nd defendant were/are the partners of the 3^rd defendant.

4.  The plaintiff, being a partner with the 3^rd defendant till 30 June 2011, was liable to pay profits tax of the 3^rd defendant up to the same date for year 2011/2012.  From 1 July 2011 onwards, being a consultant, he was liable for the salaries tax on the 50% profits generated from the services rendered for his case files. The profits generated by the consultants were shared with the 3^rd defendant on a 50:50 basis.

5.  During the calculation of the profits tax liability for the year 2011/2012 which ended on 31 March 2012, the plaintiff was asked by accounts manager of the 3^rd defendant to pay $150,754 in mid January 2012.  

6.  Sometime before the plaintiff left the 3^rd defendant, the accounts manager provided the plaintiff with the partnership accounts for the month of June 2011.  It was then found out there had been an overpayment of the provisional profits tax of $75,697.72 (“the Sum”) on behalf of the 3^rd defendant in the year 2011/2012.  The plaintiff had made repeated demands by letters for the return of the Sum but to no avail. As a result,  the plaintiff initiated the present action against the defendants for the Sum.

7.  The defendants have filed a Defence putting the plaintiff to strict proof to the above facts and counterclaimed the plaintiff for $500,000.  The defendants pleaded the following matters in the Counterclaim:-

“8.  Starting at least towards the end of 2010 or in the beginning of 2011, the plaintiff began to pester the 1st defendant proposing to vary the profit sharing method agreed upon and adopted for years whereupon the plaintiff proclaimed that he had deliberately deferred a big bill for about $1,000,000 on costs (“the $1 million bill”) so as to prove that he would suffer disadvantage upon such profit sharing method.  The plaintiff proffered that with the proposed variation retrospectively either for 12 or 24 months, the 1st defendant would have to make a refund of $200,000 to $250,000.

…

11.  At the time the plaintiff becoming a consultant aforesaid, both the defendants and the plaintiff contemplated that all consultants including the plaintiff would continue issuing bills from time to time without undue delay so as to make timely and necessary contributions at the established split of 50:50 towards the defendants as a firm of solicitors with substantial overheads as to the plaintiff had been well aware as its former partner for years.

…

15.  However, the plaintiff has failed to issue the $1 million bill to the credit of the defendants and/or to produce as demanded a list of the plaintiff’s files each with a summary of the work to be billed and/or account receivables.

16.  By reason of the matters aforesaid, the plaintiff is liable to pay ot the defendants the sum of $500,000 being defendants’ 50 split of the $1 million bill or account for and issue the $1 million bill to the credit of the defendants.”

8.  The plaintiff admits that by the end of 2010 or early 2011 he had discussed with the then two other partners of the 3^rd defendant about the variation of the profit sharing but he denies that he pestered the 1^st defendant.  He further denies that he had received instruction that entitled him to charge an individual client or in an individual matter a sum of or about $1 million.

The Summary Judgment Summons

9.  The defendants conceded that judgment be entered for the plaintiff’s claim of the Sum with costs.  They have no defence to the  claim as amended, save for the defence of set-off as raised in the defendants’ drafted Amended Defence and Counterclaim.  They urge the court to exercise the discretion to stay the execution of the judgment until the determination of the defendants’ Amended Counterclaim.  Mr Lee for the defendants submits that there is a degree of connection between plaintiff’s claim and the defendant’s amended counterclaim as both arise from the plaintiff acting as a solicitor in the 3^rd defendant.  They propose making full payment into court the judgment sum until the determination of the defendants’ counterclaim.

10.  The plaintiff submits that the defendants’ counterclaim arises out of a separate and distinct transaction.  There is no connection between the overpayment of the profits tax and the allegation of the plaintiff’s failure to issue the $1 million bill.  The proper order should be judgment for the plaintiff with costswithout a stay pending the trial of the counterclaim.

11.  Both parties do not dispute the principles laid down in United Overseas Ltd v Peter Robinson Ltd, unreported, 26 March 1991, CA Transcript 91/0297, that there are four different classes of orders that should be made where the defendant raises set-off or counterclaim. The court has freedom to respond to the perceived justice of the individual case if there is a lack of clarity of which class to apply.  The two classes which are of relevance are stipulated as follows:-

(i) where there is no defence to the claim but a plausible counterclaim of not less than the claim is set up, judgment should be for the plaintiff on the claim with costs, stayed until trial of the counterclaim; and  

(ii) where the counterclaim arises out of a separate and distinct transaction or is wholly foreign to the claim, judgment should be for the plaintiff with costs without a stay pending determination of the counterclaim. 

12.  The degree of connection between the claim and counterclaim, the strength of the counterclaim and the ability of the plaintiff to satisfy any judgment on the counterclaim are some of the consideration which the court may take account of  in the exercise of its discretion whether or not to order a stay: Hong Kong Civil Procedure 2014 at §14/4/14.

13.  I accept the plaintiff’s submission in its entirety.  I find that the defendants’ counterclaim arises out of a separate and distinct transaction.  In making the payment of the profits tax, the plaintiff was not executing his duties as a solicitor.  Being a partner of the 3^rd defendant, the plaintiff just complied with the request of the accounts manager to make payment of the profits tax of the 3^rd defendant without delay.  There is no fault on him in the capacity as a solicitor. On the other hand, the counterclaim arises out of an incident of the plaintiff’s failure to issue bills to clients when he was acting as a consultant with the 3^rd defendant.  This amounts to a serious breach of fiduciary duty on the part of the plaintiff as a solicitor.  In my view, it cannot be said that the counterclaim was so closely connected with the claim that it is unjust to enforce the claim of the Sum without regard to the defendants’ claim of $500,000: Karpex (HK) Ltd v. Yasmine Printing (China), [2008] 1 HKLRD 199 per Cheung JA at §§9 to 14.

14.  For the  reasons given above, I find that what the defendants have pleaded was not in the nature of a set-off against the Sum.  There is nothing unjust if the judgment is not stayed.

15.  I enter final judgment for $75,697.72 (i.e. the Sum) in favour of the plaintiff without a stay with pre-trial interest from the date of the writ of summons to the date of judgment and thereafter at judgment rate until payment.

The Amendment Summons

16.  It is trite law that all amendments ought to be made for the purpose of determining the real question in controversy between the parties to any proceedings or of correcting any defect or error in any proceedings.  Generally, the amendment will be allowed if it does not cause injustice to the other side or is something that cannot be compensated for by costs: see Hong Kong Civil Procedure 2014 at §20/8/6.

17.  In the present case, the defendants seek to amend the Counterclaim by deleting the complaint on the credit card claim and refine the pleading by including the claim on two files with no costs on account and no bills ever issued.

18.  At the commencement of the hearing, I ask the plaintiff whether he would oppose to the Amendment Summons even if it is made by the defendants at such an early stage.  Then the plaintiff sensibly raises no strong opposition except points out that the claim on the two files is a new cause of action added by the defendants.

19.  After careful consideration of the whole circumstances and the defendants’ proposed amendment, I find that there is no delay in making of this application and no injustice to the plaintiff as he can be compensated by appropriate orders as to costs.  I consider it is fair and just to allow disputed issues between the parties to be put before the court for determination. I give particular regard to the underlying objectives under Order 1A rule 2(2) DCR that “the primary aim in exercising powers of the court is to secure the just resolution of the disputes in accordance with the substantive rights of the parties.”

20.  Given the above, I would allow the proposed amendments as contained in the defendants’ Amended Defence and Counterclaim and order that:-

(1) the defendants do have leave to file and serve within 7 days their Amended Defence and Countercalim as marked in red as per the draft attached to the Amendment Summons; and

(2) the plaintiff do have leave to file and serve the Amended Reply and Defence to Counterclaim(if any) within 21 days thereafter.

The Striking Out Summons

21.  There are two causes of action pleaded by the defendants in the Amended Counterclaim, namely the claims concerning (i) the $1 million bill and (ii) the two files introduced by the plaintiff with no costs on account and no bills ever issued.

22.  The plaintiff specified in the summons all the grounds for striking out under Order 18 rule 19(1) of the RDC.

23.  In a  striking out application, the burden is on the plaintiff of showing that the Counterclaim should clearly and obviously be struck out.

24.  There should be no trial on affidavit and disputed facts are to be taken in favour of the party sought to be struck out.  The claim must be obviously unsustainable, the pleadings unarguably bad and it must be impossible, not just improbable, for the claim to succeed before the court will strike it out.  If the court does not think the matter to be clear beyond doubt or if it fails to be satisfied that there is no reasonable cause of action or that the proceedings are frivolous or vexatious, then there should be no striking out: Hong Kong Civil Procedure 2014 at §18/19/4.

25.  A reasonable cause of action means a cause of action with some chance of success when it is assumed that all the allegations in the pleadings are established.  A claim 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: Hong Kong Civil Procedure 2014 at §18/19/6, §18/19/8.

26.  Where a pleading is defective only in not containing particulars to which the other side is entitled, application should be made for particulars under r 12, and not for an order to strike out the pleading under this rule.  Even a serious want of particularity in a pleading may not justify striking-out if (1) the defect can be remedied, and (2) the defect is not the result of a blatant disregard of court orders: Hong Kong Civil Procedure 2014 at §18/19/6.

27.  The plaintiff submits that the pleading in the Amended Counterclaim fails to establish any reasonable cause of action. Nor did it set out the fundamental elements giving rise to it.   In regards to the $1 million claim, the defendants relied merely on the alleged proclamation. They are no more then fanciful speculations which cannot be sustained or proved by the defendants. There is simply no evidence in support of such an allegation.  The Amended Counterclaim is therefore scandalous, frivolous or vexatious. It  is bound to fail as it cannot possibly succeed.

28.  The plaintiff further submits that the pleaded defence of set-off is a tactic by the defendants to embarrass and delay the fair trial of the plaintiff’s claim.  It is an abuse of the process of the court.

29.  Even if the defendants were managed to prove the claim on the two files, in view of the trivial sum of $6,048, the plaintiff submits that it should be dealt with in the Small Claims Tribunal.

30.  In any event, plaintiff points out that the defendants must be in possession of the relevant accounts, documents or case papers at the material times.  There is no difficulty for the defendants to plead properly what their case is but they failed to do so. 

31.  Mr Lee, counsel for the defendants, does not dispute the general principles of striking out.  He submits that in deciding whether the Amended Counterclaim should be struck out, the court should consider whether the amendment made to the Counterclaim could survive striking out and whether the further and better particulars to be provided would assist.

32.  The defendants complain that the plaintiff had failed to issue bills (whether timeously or at all) to clients introduced by the plaintiff for professional work rendered by the plaintiff for and on behalf of the 3^rd defendant, thereby causing loss of the defendants. Mr Lee submits that the claim of the $1 million bill is strengthened by the inclusion of the claim on the two mysterious files in the Amended Counterclaim. There was cogent evidence, now provided by the 1^st defendant through his affirmation dated 25 July 2014, to prove that the 3^rd defendant had incurred disbursements in relation to the two files.  Professional work had been rendered but with no costs on account let alone the issuance of any bill.  Both of these files were introduced by the plaintiff and with plaintiff being the fee earner.  These were inconsistent with the plaintiff’s affirmation that he has never delayed the issuance of any bill.  These are matters needed to be explored in the future.

33.  Mr Lee draws the court’s attention to one of the email correspondences dated 13 April 2011 exhibited under the 1^st defendant affirmation.  It was written by the plaintiff to a former partner in which the plaintiff admitted that he deliberately billed some $38,000 only in December 2010.  In the plaintiff’s affirmation filed on 18 August  2014, the plaintiff contends that there is no such evidence or if there appears any, it is self-serving statement of the 1^st defendant.

34.  The defendants further submit that the plaintiff’s monthly billing showed a drastic drop after the plaintiff had become a consultant of 3^rd defendant.  The figure only showed a rebound in February 2012.  This is another concrete evidence in support of the plaintiff’s deliberate bill deferment. 

35.  There is a serious dispute on facts in the present case.  

36.  I first deal with the allegation of decline in monthly billing by the plaintiff.  With respect to Mr Lee for the defendants, I do not accept that the figures support the fact of deliberate bill deferment.  The billing for February 2012, which was the last month that the plaintiff worked as a consultant, was even higher than the average monthly billing when the plaintiff worked as a partner in the 3^rd defendant.  I find that the decline in the billing was just the up and down in a normal business dealing.  This argument obviously cannot stand.

37.  In relation to the email dated 13 April 2011, I have considered the whole context of that email.  It revealed that the plaintiff made a complaint to a former partner that  he was unfairly paid due to the existing profit sharing system.  Despite the 3^rd defendant had profit and yet the plaintiff as a partner would receive no share but had to pay out of his profit to contribute to or subsidize the 3^rd defendant.  Therefore he deliberately deferred some of the bills in December 2010.  The email itself had made no mention of the $1 million bill. 

38.  Based on the limited evidence now produced before the court by way of affidavits, I do not accept that the evidence presented show conclusively that it would be impossible for defendants to prove its $1 million bill case as pleaded at this stage.  At least the email presented to this court by the defendants showed that the plaintiff had deferred some of the bills in December 2010. Any disputed facts are to be taken in favour of the party sought to be struck out.  There should be no trial on affidavit. I do not find the $1 million claim to be obviously unsustainable.

39.  As regards the claim on the two files, I find that the defendants have raised triable issues.  All these questions should be resolved at trial.  

40.  The plaintiff submits that the Amended Counterclaimfailed to set out the fundamental elements in relation to the claim of the $1 million bill.  In my view, this defect of lacking in particularity can be remedied.  The plaintiff should request for further and better particulars which he did by taking out the FBP Summons.  I find that the defendants should not be vexed with an application for striking out.

41.  For all the reasons set out above, it is not clear and obvious that defendants are bound to be unable to prove its pleaded allegations at trial.  The plaintiff cannot make out any of the four grounds for striking out.  I dismiss his application to strike out the defendants’ counterclaim.

The FBP Summons

42.  The plaintiff served on the defendants with a request for further and better particulars of the counterclaim on 4 May 2014.  He raised 3 requests (“the Request”) in respect of the paragraphs 8 and 15 of the Defence and Counterclaim filed on 2 January 2014.  In a letter dated 28 August 2014 the defendants informed the plaintiff that they agreed to provide Request 1 and Request 2(a) within 14 days hereof.  The defendants confirm during the hearing that they would provide the same as stated in the letter within the said time frame.  During the hearing, the plaintiff withdraws parts of his requests and that leaves Request 2(c) and Request 3(a) for determination.

43.  The requirement to give particulars reflects the overriding principle that the litigation between the parties, and particularly the trial, should be conducted fairly, openly, without surprises and, as far as possible, so as to minimise costs: see Hong Kong Civil Procedure 2014 at §18/12/1.

44.  In Aktieselskabet Dansk Skibsfinansiering v Wheelock Marden & Co. Ltd [1994] 2 HKC 264 Bokhary JA (as he then was) stated that the functions of properly particularised pleadings are as follows at p269:-

(1) to inform the other side of the nature of the case that they have to meet as distinguished from the mode in which that case is to be proved;

(2) to prevent the other side from being taken by surprise at the trial;

(3) to enable the other side to know with what evidence they ought to be prepared and to prepare for trial;

(4) to limit the generality of the pleadings, the claim and the evidence;

(5) to limit and define the issues to be tried, and as to which discovery is required;

(6) to tie the hands of the party so that he cannot without leave go into any matters not included (although if the opponent omits to ask for particulars, evidence may be given which supports any material allegation in the pleadings).

Request 2(c)

45.  It is relation to paragraph 8 of the Counterclaim(see §7 above), the original request 2(c) is as follows:-

“Whether any document, note, correspondence or accounting record was shown or produced by the plaintiff, and to whom it/they was/were shown produced when the plaintiff made the proclamation as alleged.”

Request 3(a)

46.  It is relation to paragraph 15 of the Counterclaim (see §7 above), the original request 3(a) is as follows:-

“whether the defendants made any demand to issue the “$1 million bill” and if so, how many demand(s) was or were made, when and in what manner was it or were they made, and to whom was the demand(s) made.”

47.  The plaintiff submits that the provisions of these particulars are necessary as he does not know what and how to meet the defendants’ case.  Mr Lee for the defendants submits that this request is in fact interrogatories in disguise rather than request for particulars.  Such request is tantamount to asking for specific discovery and/or disclosure of evidence at pleading stage.  The defendants submit that the fairer way is for the plaintiff to re-visit after exchange of witness statements if necessary.

48.  I disagree with Mr Lee.  It is a cardinal principle that litigants should not be taken by surprise in the civil litigation system.  The particulars in relation to the $1 million bill in the Counterclaim itself is palpably insufficient.  They are too general.  I find that the requests are proper particulars of the Counterclaim.  I am of the view that if these particulars are made available to the plaintiff at an early stage, it helps to limit and define the issues to be tried and confine their efforts on those.

(i)For request 2(c), it is the pleaded case of the Coutnerclaim that plaintiff proclaimed that he had deliberately deferred the $1 million bill.  The defendants should be in a position to tell if any document, note etc was actually shown by the plaintiff when the proclaimation was made and to whom they were shown.

(ii)For request 3(a), it is pleaded that the defendants demanded a list of plaintiff’s files with a summary of the work to be billed.  The defendants should be able to say if the defendants had made particular demand to that $1 million bill; when; how many times; how and to whom was the demand made.

49.  I order the defendants to furnish, within 14 days from today, the further and better particulars under Request 2(c) and Request 3(a).

Costs

50.  The plaintiff shall have the costs of and occasioned by the Summary Summons and the FBP Summons. 

51.  The defendants shall have the costs of and occasioned by the Striking Out Summons.

52.  Costs of and occasioned by the Amendment Summons to the plaintiff in any event.

53.  As the plaintiff has substantially been successful at the hearing, I order that two third of the costs of the hearing be to the plaintiff and one third of the costs of the hearing be to the defendants with certificate for counsel.

54.  I further grant order nisi for the above costs order, to be taxed if not agreed.  The order will be made absolute 14 days from the day of judgment.