TANG CHENG PO NIN v. TANG YIU TONG AND OTHERS

HCMP 1768/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 1768 OF 2005

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[By Order to carry on dated 22 August 2005]

[By Order to carry on dated 26 September 2005]

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REASONS FOR JUDGMENT

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The application

1.  The primary issue between the parties has been resolved by agreement.  That agreement amounts to a complete victory in the proceedings for Madam Tang.  An issue of costs now arises.  The Bank says that Madam Tang should pay its costs of the proceedings, or that there should be no order for costs.  If any costs are to be paid by the Bank, the Bank says that they should be limited to one third of the costs of the proceedings.

2.  At the hearing of this matter I ordered that the Bank must pay Madam Tang’s costs of the proceedings, and that I would later give my reasons.  This I now do.

Background

3.  Between 1966 and 1996, Madam Tang, her husband, the late Tang Chung Hing, and their son Tang Yiu Tong, lived in a housing unit in Choi Hung estate, owned by the Hong Kong Housing Authority (HKHA).  Mr Tang Senior was the registered tenant, his wife and their son registered as residents in the property.

4.  In 1995, Madam Tang received an inheritance of some $700,000.00.  In early 1996, she learned that a new flat in Wing Fai Centre in Fanling was available for purchase under the HKHA’s Private Sector Purchase Participation Scheme for a sum of $1 million.  Mr Tang Senior, as the registered tenant of the housing unit, was the person entitled to make the purchase, but the money for the purchase would have to come from his wife, and a mortgage, which would be repaid by her, as she was the proprietor of a small furnishing fabric business.  Mr Tang himself was in modest employment earning sufficient to support his family, but not enough to repay a mortgage.

5.  In May 1996, consequent upon an unrecorded family arrangement, application was made by Mr Tang Senior and Mr Tang Junior, to purchase the new flat, using Madam Tang’s inheritance and the mortgage which she would pay.  Apparently, it was not disclosed that the source of the capital was Madam Tang’s inheritance.  In due course Madam Tang repaid the mortgage loan.

6.  The family resided in the new flat between 1996 and 2002, when Mr Tang Junior moved away from the family.  At that time, with the agreement of Mr Tang Senior and Mr Tang Junior, Madam Tang instructed solicitors to make application to the HKHA, for them to transfer the property to her at nil consideration.  That approval was duly given on 10 July 2002.

7.  Prior to 1997, Madam Tang and her husband, like many Hong Kong families, had sought to emigrate to Canada.  In July 2002, before they could take steps upon the approval given by the HKHA, Madam Tang and her husband moved to reside in Canada to fulfil immigration requirements.  Sadly, in mid-2003, Mr Tang senior died.  Madam Tang attended to his funeral and personal affairs, and in around September 2004, returned to live in Hong Kong.

8.  In April 2005, she instructed solicitors to make a fresh application for the transfer of the property to her.  It was then discovered that, without the knowledge of Madam Tang or her husband, in July and August 2003, the Bank had obtained two Charging Orders against the interest of Mr Tang Junior following a judgement entered against him in the District Court.

9.  By letter before action on 18 August 2005, Madam Tang, by her solicitors, wrote to the solicitors for the Bank briefly setting out the background and seeking advice as to the Bank’s instructions in the circumstances.  Without waiting for a time limit of seven days imposed in the letter before action to expire, on 20 August 2005, the Originating Summons seeking a declaration that the interest of Mr Tang Junior, both in his personal capacity and in his capacity as the personal representative of his late father, were held on trust for Madam Tang, was filed.  At the same time declarations discharging the Charging Orders were sought.

The course of the proceedings

10.  Not surprisingly, Mr Tang Junior, both in his personal capacity and his representative capacity, immediately conceded the proceedings, filing an acknowledgement of service indicating that he did not intend to contest the proceedings.  On 21 October 2005, Madam Tang’s affidavit in support was filed.  On 21 November 2005, an affidavit in reply was filed by the Bank.

11.  The matter came before Yam J, on 29 November 2005, for a pre-trial review.  Counsel for the Bank then indicated the Bank’s intention to resist the matter to trial, challenging not only the veracity of Madam Tang’s affidavit, and requiring her for cross-examination, but indicating also that the matter was to be argued on the principle that it was contrary to Government policy that a person with the assets of Madam Tang should be able to acquire a property under the Private Purchase Participation Scheme.  The Bank also sought an order that Mr Tang Junior be required to attend for cross-examination.  That latter order was refused, and the matter was set down for trial before me on 6 March 2006.

12.  On 24 January 2006, the Bank conceded the position and agreed to discharge and vacate the Charging Orders.  On 15 February 2006, a consent summons was signed between Madam Tang and her son, consenting to the declarations sought as to Madam Tang’s beneficial interest in the property.  The Charging Orders have now been discharged.

13.  Now the question of costs arises.  The primary position of the Bank is that they should not have to pay any costs at all.

Discussion

14.  The District Court can impose a charging order against the beneficial interest of a judgement debtor in, among other things, land.  The relevant provisions are contained in ss 52A, 52AA and 52B District Court Ordinance, Cap 336.  For all intents and purposes these provisions are identical to the provisions in the High Court Ordinance, Cap 4, governing charging orders.

15.  The important limitation upon an entitlement to a charging order is that it is only the beneficial interest of a judgement debtor that may be charged.  Thus, where a judgement debtor holds property as a bare trustee, that interest may not be made the subject of a charging order.

16.  Consequently when a judgement creditor chooses to obtain and register a charging order, without any specific knowledge as to the precise nature of the interest of the judgement debtor in the property charged, he takes a commercial risk that that interest will be a beneficial interest.  If it is not a beneficial interest, and litigation is required to remove the charging order, the judgement creditor will, if he resists the removal of the charging order but loses, be exposed to an order for costs.  That is the commercial risk.

17.  In the present case the proceedings were issued before the Bank had had time to respond to the letter before action.  The Bank’s solicitors, on receipt of the letter before action, sought from Madam Tang’s solicitors the evidence to substantiate the allegation that the registered proprietors did not hold a beneficial interest in the property.  Madam Tang’s solicitors responded on 2 September 2005, stating, inter alia,

“At this juncture, we do not propose to elaborate on the evidence supporting our client’s claims which will in due course be adduced by affirmation(s) to be made by her and filed in HCMP 1768/2005 and to be served on your client in due course.”

The affidavit from Madam Tang was duly filed from 21 October 2005.

18.  If at that stage, the Bank, having considered the affidavit, had conceded the proceedings they would have been perfectly entitled to say that there should be no order for costs.  The proceedings had been issued before the expiry of the time limit imposed, and Madam Tang’s solicitors had refused to show the evidence to them, insisting that the evidence would only be disclosed through the proceedings.  The Bank would have been perfectly entitled to say that the proper way to conduct these proceedings would have been to expose the evidence by way of letter with supporting documents for the proper consideration of the Bank in order that the expense of proceedings might be avoided.  The Bank would have been entitled to say that following sensible advice upon consideration of the evidence they've would have agreed to discharge the charging orders, and there would have been no need to issue the proceedings.

19.  But upon receipt of the affidavit, the Bank did not concede the proceedings.  Instead it engaged the proceedings fully.  An affidavit in reply was filed.  They went before Yam J and indicated that not only was the veracity of Madam Tang’s affidavit be challenged but that the matter was to be defended on principle.  They sought to cross-examine Mr Tang Junior, in a further attack on Madam Tang’s veracity.  At virtually the last minute they conceded the proceedings.

20.  By adopting the course of engaging in the proceedings the Bank was taking a commercial risk that it might succeed in resisting the application for the declarations as trusteeship, and accordingly protecting the Charging Orders that they had registered against the property.  The commercial risk that they were taking was that if they failed in resisting the proceedings they were exposed to the risk of costs.

The Bank’s argument on costs

21.  Ms Chui submitted that the Bank had good grounds to challenge the veracity of Madam Tang’s affidavit.  She pointed to a number of matters upon which Madam Tang would have been cross-examined, had the matter gone to trial.  She referred me to two extracts from the Hong Kong Report of 1978 and 2004, upon which she indicated there was a basis to argue the matter in principle, including as an assertion that in terms of the policy behind the Private Sector Purchase Participation Scheme, persons with the assets that this family had would not have been allowed to make the purchase.

Should there be a costs order:

22.  It is right that these are matters which were available to the Bank to raise at trial.  But they elected not to do so, instead, conceding the proceedings, and allowing the necessary declarations to be made, establishing that the interest of Mr Tang Junior was not a beneficial interest, and consequently an interest that could not be subject to a Charging Order.

23.  The question of costs are in the discretion of the court.  Ms Chui was unable to cite any authority for the proposition I discerned behind her submission, namely that if a defendant believes it has an arguable case to resist an action it ought not to have to pay costs if it ultimately concedes the action.

24.  It was open to the Bank at an early stage of this matter to accept Madam Tang’s contentions and to withdraw from the proceedings allowing the necessary declarations to be made.  As I have already indicated had the Bank done so at an appropriate stage I would not have awarded costs against the Bank.  But it chose not to do so.  It chose to engage the proceedings and press the matter to the stage where it was set down for trial.

25.  The Bank took a commercial risk in registering a charging order against property that was not in the name of Mr Tang Junior alone but in the joint name of another person, with the same surname.  That fact alone raises at the least, an inference that the interest of Mr Tang Junior may not necessarily be a full beneficial interest.  The Bank took a commercial risk in resisting the litigation and pressing the matter on to trial, only to concede shortly before trial day.

26.  In the whole of the circumstances I was satisfied that an appropriate exercise of discretion of the court in relation to costs was to require the Bank to pay Madam Tang’s costs.

27.  Mr Tang Junior, in both his personal and representative capacity, had conceded the action at the very beginning.  In neither capacity is he responsible for any continuing costs in the litigation, all of which lie at the foot of the Bank.  There is no basis upon which he should be liable for any of the costs.  There is no basis to apportion costs between the various defendants.

28.  The Bank must pay Madam Tang’s costs of the proceedings to be taxed on party and party basis.