THE HONGKONG AND SHANGHAI BANKING CORPORATION LTD v. ONG TONG SING LAWRENCE AND OTHERS

HCA 2200/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2200 OF 2006

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J U D G M E N T

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1.  The primary application is that of the defendants, which is that the writ was not properly served and it has now run its course.  The plaintiff whilst opposing that application has in the event that it is granted applied to renew the validity of the writ for a further 12 months.  The second application by the defendants is to strike out the plaintiff’s claim for being time-barred.

Background

2.  The plaintiff needs no introduction, and I shall refer to it hereafter as the Bank.  The defendants are partners of a firm of solicitors which I shall call OC.

3.  The action brought by the Bank against the partners of OC is a fallback, to be run if its claim to recover repayment of a loan made to a defaulting former customer, called Rita Leung, to enable her to purchase a property, does not succeed.  That loan was made in August 1997.  The Bank instructed OC to represent it in completion of the security documents and execution of them.  Those security documents included a mortgage over the property to be purchased and a deed of guarantee (the Guarantee) to be executed under seal by one Richard Fung.

4.  The Bank paid out the loan in reliance on OC’s certifying compliance with the retainer letter.  That included execution under seal by Richard Fung of the Guarantee, which was dated 14 August 1997.  On the face of the Guarantee it was signed before one Tsui Wing Chuen who was then a clerk in the employ of OC.  The partner having control of the transaction was Andus Lai Sai On, one of the named defendants in the action.

5.  Between 10 October 2002 and 29 January 2003 there was correspondence between Richard Fung and the Bank, initiated by Richard Fung, in which he sought clarification from the Bank that he was under no obligation to the Bank.  The Bank responded that an earlier guarantee which he had executed to support a loan in a previous transaction with Miss Leung had been discharged consequent upon repayment of that loan.  However, he was still bound by the Guarantee, given to support a second advance to Miss Leung.  He was sent a copy of the Guarantee, exhibiting his signature and that of the witness Mr Tsui.

6.  Richard Fung wrote various letters seeking further information as to the signing and the place of signing, and the Bank sought and obtained confirmation from OC (in particular Andus Lai) that the Guarantee had indeed been signed under seal in the presence of Mr Tsui.

7.  Then by letter of 29 January 2003 Richard Fung wrote to the Bank categorically denying having signed the Guarantee.

8.  In July 2003 the Bank issued proceedings against Miss Leung and Richard Fung.  It obtained judgment by default against Miss Leung and in the fullness of time sold the property secured by its mortgage, recovering thus some of the money due to be paid back by her.  But there was a shortfall and that remains outstanding with interest accrued and accruing.  Miss Leung has been declared bankrupt and has disappeared.  Realistically there is no prospect of further recovery from her. 

9.  Meanwhile, Richard Fung denied liability.  He deposed in an affirmation dated November 2003 that he had never signed the Guarantee.

10.  In February 2004 Andus Lai and Mr Tsui made responding affirmations contending execution of the Guarantee in the manner shown on the face of the document.

The Fallback Action

11.  Given the conflict of fact and the possibility that at trial Richard Fung’s denial of having executed the Guarantee might be accepted by the court, the Bank in August 2006 decided to issue these fallback proceedings against OC in negligence, and instructed Johnson Stokes & Master (JSM) to do so.

12.  JSM sent a pre-action letter dated 11 August 2006 to OC for the attention of Andus Lai, explaining the reasons for the proposed action.  There was further correspondence. 

13.  Then Thomas Shiu, the partner at JSM having conduct of the matter, telephoned Andus Lai, according to a file note he made on 28 August 2006, during which as a courtesy he proffered to fellow members of the Law Society the warning that unless the partners of OC were prepared to indemnify the Bank against an adverse result of the action against Richard Fung, JSM would be obliged to issue a writ against them as a protective measure.  OC responded, by letter of 25 September, that this would not be forthcoming. 

14.  On 30 September JSM filed the writ, founded in negligence, in this action.  In a letter of 12 October 2006 to OC they reported that they had filed a writ against the three partners of OC, enclosing a copy as a matter of courtesy.  It was further stated that the writ would not be served for the time being.

15.  During the period spanning the end of 2006 and beginning of 2007 there were negotiations concerning settlement of the outstanding debt, but nothing concrete emerged from these.

16.  By letter of 7 August 2007 JSM wrote again to OC, informing them of their intention to serve the writ, asking whether their insurers had engaged solicitors to act for them upon whom they could effect service.  The response, of the following day, stated:

“RE: HCA2200 of 2006

We refer to your letter of 7^th August 2007.

We do have reported the matter to the insurer who will only appoint panel solicitors to act for us after the Writ has been served.  Hence, please serve the Writ to us directly but since our handling partner Mr Lai Sai On will be on vacation leave shortly until 23^rd August, we would be much obliged if the Writ can be served to us after that day.

Thank you for your attention.”

17.  And in response to that on 28 August 2007 a clerk of JSM purported to undertake service by delivering the sealed writ and covering letter to the offices of OC, handing the same to the receptionist at the front desk.  The covering letter of even date stated:

“We refer to the above action and enclose, by way of service, the Writ of Summons issued on 30 September 2006 by our client, The Hongkong and Shanghai Banking Corporation Limited, as the Plaintiff against all the partners of your firm, as the Defendants.”

18.  According to an affirmation of Andus Lai of 11 December 2007 filed in this action, he received the sealed copy writ from the firm’s receptionist around 4:30 pm on 28 August 2007, and his fellow partners and defendants also became aware of the receipt of the writ at the same time.

19.  So, there being no dispute about this, Andus Lai as partner in charge had been in communication with JSM about the proposed action, received a copy of the writ soon after it was filed, and on the day of purported service received into his possession along with his fellow partners and remaining defendants the sealed copy writ.

20.  Shortly after this event Stephenson Harwood & Co. (SH & Co.) were appointed to represent the defendants.  There was correspondence between JSM and SH & Co. on the topic of moving the action forward.  But in three letters of 14 and 21 September and 29 October 2007 SH & Co. expressly reserved the right to take “jurisdictional challenges” on behalf of the defendants, without spelling out what these were though they were asked.

21.  That was finally revealed, but only on 12 December 2007, by the filing and service of the defendants’ summons that is now before me; that the “jurisdictional challenge” was that the writ had not been served, giving the court no jurisdiction following its lapse, under O.12 r.8 RHC.  By then, the writ had run its course.

22.  O.12 r.8 reads (in part) as follows:

“8.     Dispute as to jurisdiction (O.12, r.8)

         (1)  A defendant who wishes to dispute the jurisdiction of the court in the proceedings by reason of any such irregularity as is mentioned in rule 7 or on any other ground shall give notice of intention to defend the proceedings and shall, within the time limited for service of a defence, apply to the Court for —

(a)      (not applicable)

(b)     an order declaring that the writ has not been duly served on him, or

(c)-(f)  (not applicable)

(g)   a declaration that in the circumstances of the case the court has no jurisdiction over the defendant in respect of the subject-matter of the claim or the relief or remedy sought in the action.”

Was There Service?

23.  That is the first question for me to deal with, based on the incontrovertible circumstances which culminated in the delivery of the sealed copy writ I have recorded.

The Defence Position

24.  It is the contention of the three defendants that service as such was not regular, so that there was no service.  For want of service, the writ has now lapsed.

25.  The following was the argument mounted by Mr Bullett in support of this contention: 

· O.10 r.1 RHC sets out the mode of service of a writ.  Pertinent parts of this rule read as follows:

“ORDER 10

SERVICE OF ORIGINATING PROCESS: GENERAL PROVISIONS

1. General provisions (O.10, r. 1)

(1)  A writ must be served personally on each defendant by the plaintiff or his agent.

(2)  A writ for service on a defendant within the jurisdiction may, instead of being served personally on him, be served —

(a)      by sending a copy of the writ by registered post to the defendant at his usual or last known address, or

(b)     if there is a letter box for that address, by inserting through the letter box a copy of the writ enclosed in a sealed envelope addressed to the defendant.

(3)  Where a writ is served in accordance with paragraph (2)—

(not applicable)

(4)  Where a defendant’s solicitor indorses on the writ a statement that he accepts service of the writ on behalf of that defendant, the writ shall be deemed to have been duly served on that defendant and to have been so served on the date on which the indorsement was made.

(5)  Subject to Order 12, rule 7, where a writ is not duly served on a defendant but he acknowledges service of it, the writ shall be deemed, unless the contrary is shown, to have been duly served on him and to have been so served on the date on which he acknowledges service.

(6)  Every copy of a writ for service on a defendant shall be sealed with the seal of the High Court and shall be accompanied by a form of acknowledgement of service in Form No.14 in Appendix A in which the title of the action and its number have been entered.

(7)  (not applicable)”

· There was no endorsement by the defendants’ solicitors under rule 1(4).

· SH & Co. filed on behalf of the defendants an acknowledgment of service in standard form dated 7 September 2007.  This raised the presumption of service under rule 1(5).  But then there is O.12 r.7, which states:

“Acknowledgment not to constitute waiver (O.12, r.7)

7. The acknowledgement by a defendant of service of a writ shall not be treated as a waiver by him of any irregularity in the writ or service thereof …”

· The form of service known as ordinary service, whereby the document may be served by leaving the same at the proper address of the person to be served, under the provisions of O.65 r.5 was not applicable.  That rule does not apply where the document is required to be served personally.  A writ is so categorized.

· In the lead up to the purported service, there was no concession in the correspondence or otherwise to dispose with formal service in compliance with O.10 r.1.

· There being no service entitled the defendants to pursue the jurisdictional challenge expressly reserved.

The Bank’s Position

26.  At the outset, Mr Man told me that it was conceded that service in the circumstances was irregular, but he prayed in aid O.2 r.1, which in part reads as follows:

“Non-compliance with rules (O.2 r.1)

1.    (1)     Where, in beginning or purporting to begin any proceedings or at any stage in the course of or in connection with any proceedings, there has, by reason of any thing done or left undone, been a failure to comply with the requirement of these rules, whether in respect of time, place, manner form or content or in any other respect, the failure shall be treated as an irregularity and shall not nullify the proceedings, any step taken in the proceedings, or any documents, judgment or order therein.

(2)     Subject to paragraph (3) the Court may, on the ground that there has been such a failure as is mentioned in paragraph (1) and on such terms as to costs of otherwise as it thinks just, set aside either wholly or in part the proceedings in which the failure occurred, any step taken in those proceedings or any document, judgment or order therein or exercise its powers under these rules to allow such amendments (if any) to be made and to make such order (if any) dealing with the proceedings generally as it thinks fit.”…

27.  He went on to submit that the Court could and should readily exercise its discretion to remedy a minor irregularity.

28.  Mr Bullett’s counter to that was that O.2 r.1 is designed to remedy a simple error where no harm has been done.  JSM he submitted was a top class firm which would not have made a mistake.  I quote verbatim from his skeleton, in which he refers to the Bank as P:

“2.  P’s deliberate non-compliance here with the prescribed mode of personal service or its alternatives cannot be characterised as mistake, error or omission.  Personal service is after all mandatory for writs yet JSM chose to ignore this requirement and serve by ordinary service. Order 2 rule 1 is it is submitted designed to relieve litigants from the consequences of errors or difficulties, not from the consequences of deliberately disregarding mandatory rules which themselves provide various alternatives and in circumstances where compliance with the rules presents no difficulty whatsoever.  Therefore, whilst power to cure the irregularity may well exist under order 2 rule 1, it would be a wrong exercise of discretion in the circumstances so to exercise it.  P has not pointed to any decided case to the contrary.  P is not an applicant who has encountered difficulty but one who is seeking relief from the consequences of its own intentional disregard of the rules:”

Thus that I should not exercise my discretion in favour of enabling the irregularity of service to be rectified.

Discussion

29.  In the first instance I reject at once the suggestion that JSM in undertaking service in the manner that they did were aware that the service was irregular.

30.  This would quite simply have been an entirely cynical approach with no advantage to be achieved.  There is no evidence or even suggestion that the irregularity was deliberate.

31.  Much more likely was that given the history, the fact that the partners had nearly a year prior been sent a copy of the writ, the communications that flowed between JSM and OC, the forewarning of service pending, and the deferring of that to await Andus Lai’s return from a break, are all consistent with the approach adopted of service between solicitors.  It seems to me that the defendants are the ones, on advice or not it matters not, who have been cynical in their approach to the issue of service, awaiting the lapse of the writ before moving for its dismissal.

32.  There is no doubt but that they all three received the writ on the date of delivery, knew what it was and could read what it said, and if for some obscure reason wanted to hold JSM to the strict letter on the manner of service, could and should have alerted them forthwith to the irregularity, with ample time to do so before the writ had run its course. 

33.  The rather coy attitude adopted, to reserve their position without saying what that was, right up to the issue of the summons in December nearly four months later, is to my way of thinking an extraordinary approach to a straightforward matter. 

34.  Plentiful is the judicial commentary on litigants who adopt such an approach.  I need quote only one example; one that is entirely apposite in this case.  Deputy High Court Judge Carlson in Bank of China (Hong Kong) Ltd v Chan Jiansen, unreported HCA 2844/2001 said at paragraph 23:

“23.       It strikes me that the remarks of Stone J in Transamerica Occidential Life Insurance v King Sound Industry [2005] HKLRD 125 at page 133 D-G are apposite:

‘The object of service of process upon a party is to bring the process to the notice of the party to be served, and such manifestly has occurred.  The manner in which service has been effected has caused no prejudice, and none is alleged … if and insofar as there is some technical failure, that falls to be cured under the provisions of O.2 r.1 … and if and insofar as such be necessary in this regard I exercise my discretion in favour of the plaintiff.’

There can be no doubt whatsoever that the Defendant has received the writ and knows what the case is all about and is able to respond to it.  Mr Pow accuses him of playing games with the court and in my judgment there is much force in that comment.”

It seems to me that Mr Pow’s comment fits the bill in this case as well.

35.  In the White Book at 2/1/5, under the sub-heading Exercise of discretion to correct irregularities it is said:

“In most cases the way in which the Court exercises its powers under Order 2 rule 1 is likely to depend on whether it appears that the opposite party has suffered prejudice as a direct consequence of the irregularity, but the rule is so framed as to give the Court the widest possible power to do justice.  Hence, prejudice, or lack of prejudice, although often the all-important factor in the exercise of the discretion, is not always the only relevant factor …”

36.  In this case there is quite apparently no prejudice, and no earthly reason why I should not exercise my discretion by finding that there has been effective service on the three defendants.

37.  That deals with the first part of the defendants’ motion.  The second part, in the alternative, is that the claim be struck out pursuant to O.18 r. 19(1)(a)(b) and/or (d) and/or the inherent jurisdiction of the court for being time-barred. 

38.  I come to that next.

Should the Claim be Struck Out, for Being Time-Barred?

39.  I begin by quoting from the White Book at 18/19/4, under the sub-heading Exercise of powers under this rule:

“Striking out only in plain and obvious cases — it is only in plain and obvious cases that the Court should exercise its summary powers to strike out the indorsement on any writ or any pleading under this rule.  These should be no trial upon affidavit.  Disputed facts are to be taken in favour of the party sought to be struck out.  Nor should the court decide difficult points of law in striking out proceedings.  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 …”

40.  The motion to strike out for being time-barred arises because of section 4 of the Limitation Ordinance, Cap.347 (the LO) which states in part:

“1.     The following actions shall not be brought after the expiration of six years from the date on which the cause of action occurred, that is to say:

(a)  actions founded on simple contract or on tort; …”

41.  The claim being grounded in the tort of negligence committed at the time the Guarantee was said to have been signed, that is on its date being 14 August 1997, the time for filing the writ would have expired by 14 August 2003.  Thus prima facie JSM’s writ was out of time by more than three years.

42.  However, the Bank in resisting the strike out, claims to be entitled to involve the relevant provisions of section 26 of the LO, which postpones the onset of the limitation period where there has been deliberate concealment.

43.  Those relevant provisions are as follows:

“26.   (1) … where in the case of any action for which a period of limitation is prescribed by this Ordinance, either —

…

(b)     any fact relevant to the plaintiff’s right of action has been deliberately concealed from him by the defendant … the period of limitation shall not begin to run until the plaintiff has discovered the fraud, concealment or mistake (as the case may be) or could with reasonable diligence have discovered it.

(2)     References in subsection (1) to the defendant include references to the defendant’s agent and to any person through whom the defendant claims and his agent.

(3)     For the purposes of subsection (1), deliberate commission of a breach of duty in circumstances in which it was unlikely to be discovered for some time amounts to deliberate concealment of the facts involved in that breach of duty.”

44.  The rationale is that if in the action against him Richard Fung is found not to have signed the Guarantee, then it follows that Mr Tsui did not witness his signature.  Yet he (and thus his employers, the defendants) represented that he did.  There could be no other explanation that was not fanciful.  This would amount to deliberate concealment and bring into play the deferring of the period of limitation at section 26(1)(b).

45.  When would that begin?

46.  Mr Man submitted that the Bank can only be said to discover deliberate concealment once it becomes established that there has been deliberate concealment.  And that can only be when there is a determination that Richard Fung did not sign the Guarantee.  So that date has not yet arrived.

47.  Alternatively, if it is that the Bank should be taken as having “discovered” the concealment when Richard Fung first raised the enquiry as to liability (at the earliest in October 2002, though perhaps later) then the limitation period is still running and will not end until at the earliest 10 October 2008.

48.  Mr Bullett submitted that section 26 of the LO has no application.  If there were to have been deliberate concealment it could only have been on the basis of fraud by the defendants’ clerk.  But fraud is not pleaded.  It is negligence.  The pleadings and evidence adduced are consistent with Mr Tsui having been duped by an impostor pretending to be Richard Fung.  In such a case there is no deliberate concealment.

Discussion

49.  I reject Mr Bullett’s suggestion of a scenario that gives rise to negligence founded on being duped rather than deliberate concealment.  The impostor so-called would have had to present Richard Fung’s ID card which was asked for and copied and remains on file, would have had to look like Richard Fung and would have had to have the same signature. This is fanciful; the proposition is, with respect, devoid of merit.  If Richard Fung really did not sign, then the only viable conclusion is that Mr Tsui was a party to the deception and lied about that.

50.  This being a strike out application I need not say any more than that this is not a plain and obvious case for a strike out of a claim.

51.  That is enough to resolve the second application.

Result

52.  The defendants’ summons of 12 December 2007 as to paragraphs 1 to 6 is dismissed (Paragraph 7, being for a stay of this action pending resolution of the claim against Richard Fung has already been adjourned sine die).

53.  I make no order on the plaintiff’s summons. 

54.  Costs are nisi.  They are in favour of the Bank.  But I go further.  Neither of the applications were warranted.  In the circumstances the costs on a common fund scale shall be taxed and paid forthwith.