DAH SING BANK, LTD v. RICH STAR INVESTMENT DEVELOPMENT LTD AND OTHERS

HCMP 1893/2016

[2019] HKCFI 1825

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1893 OF 2016

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D E C I S I O N

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1.  The defendants apply for an order that these originating proceedings should continue as if they had been begun by writ. The master adjourned to this court for direction, including that as to whether the defendant’s summons should be heard first or at the same time of the substantive argument of the originating summons.

Background

2.  The plaintiff commenced these proceedings by way of originating summons on 25 July 2016 pursuant to O88 of the Rules of the High Court (“RHC”).  It extended financial facilities to the defendants in 2014 to 2015.  It now seeks to recover from the defendants outstanding loan and to enforce the incidental guarantees and mortgages, including seeking vacant possession of the properties subject to the mortgages.

3.  The filing of affirmations of the parties in respect of the originating summons concluded in February 2018.

4.  On 9 March 2018, an order by consent of the parties was made for the originating summons to be adjourned for substantive argument with 1 day reserved.

5.  However, on 26 March 2018, the defendants took out a summons for an order that the originating proceedings be continued as if the matter had been begun by writ.  Such application was taken out pursuant to O28, r8 of the RHC.  By their affirmation in support, the defendants explained that there exists serious and substantial dispute of fact and law which could not be disposed of on affidavit summarily.  Intention to adduce expert evidence in respect of the issues raised in defence was also indicated.

6.  On 9 April 2018, and by consent of the parties, a master adjourned the defendants’ summons for argument with 3 hours reserved.  The originating summons was also adjourned pending the determination of the defendant’s application.

7.  However, on 18 April 2018, another master took the view that the defendants’ summons should instead be heard at the same time of the substantive argument of the originating summons.  He considered that the questions to be considered in the substantive hearing of the originating summons and the defendant’s summons might well be the two sides of the same coin.  The master therefore summoned the parties before him.  Upon that, the plaintiff changed its stance and endorsed the observation of the second master whereas the defendants sought to maintain the order dated 9 April 2018.

8.  After hearing the parties[1] on 9 July 2018, the master effectively set aside[2] the order made on 9 April 2018.  However, he did not decide the question raised with the parties, but adjourned both the originating summons and the defendant’s summons for directions by a judge.  Hence the hearing before this court.

Discussion

9.  O28, r4(1) provides that the court may make such order in favour of the plaintiff in the hearing of an originating summons (summarily), if the liability of the defendant in respect of any claim by the plaintiff is established.  Otherwise, the court, pursuant to r4(2), has the general power to give such directions as to the further conduct of the proceedings as it thinks best adapted to secure their just, expeditious and economical disposal.  R4(3) to (5) set out the specific type of directions[3] that may be made without prejudice to the generality of r4(2).

10.  The power of the court to order that the proceedings should be continued as if the matter had been begun by way of writ is provided under the separate rule of O28, r8(1).  The giving of such direction is also envisaged under r4(2) mentioned above.

11.  R8(1) provides:

“Where, in the case of a cause or matter begun by originating summons, it appears to the Court at any stage of the proceedings that the proceedings should for any reason be continued as if the cause or matter had been begun by writ, it may order the proceedings to continue as if the cause or matter had been so begun and may, in particular, order that any affidavits shall stand as pleadings, with or without liberty to any of the parties to add thereto or to apply for particulars thereof.”

12.  As the rule provides, the power under r8 may be exercised at any stage of the proceedings and for any reason. The usual reason for the direction under this rule is that there exists on the basis of the affidavit evidence genuine or substantial dispute that should be resolved by employing the mechanism of a writ action, particular the requirement of proper pleadings to define the issues.

13.  It should be noted that the directions under the abovementioned provisions of O28 may be given either upon application or on the court’s own motion in case management.

14.  Further, O28, r4(3) provides that the court has the duty, at as early a stage of the proceedings as appears to it to be practicable, to consider whether there is or may be a dispute as to fact and whether the just, expeditious and economical disposal of the proceedings can best be secured by hearing oral evidence and to accordingly to give the necessary directions for such purpose.

15.  The above rule and the power exercisable under it are flexible.  So is the stage of the proceedings that may appear to be practicable for the court to consider the exercise of the power. A case commenced by originating summons normally reaches such a stage after the close of the affidavit evidence.

16.  In the circumstances of the present case, it should be practicable for the master to consider the exercise of the abovementioned case management power at the stage when the affidavits of both sides have been filed.  As mentioned, this happened in February 2018.

17.  By consent, it was indeed directed at that stage that these proceedings would proceed to substantive argument (estimated to last for 1 day).  At that stage, no request was made and no specific direction was given under O28, r4(3) in respect of hearing of oral evidence or cross examination of deponents of the affidavits during the substantive argument.  In other words, the parties then took the view that the matter could be argued on affidavits only.

18.  That the proceedings would proceed to substantive argument, and in the manner as mentioned above, does not prevent the court from exercising the power under O28, r4 or r8, if after substantive argument the court takes the view that the defendant has a credible defence that involves material factual dispute.  In that sense, the exercise in the substantive argument is akin to a summary judgment application.  As to the burden and test in the exercise, guidance is available from Billion Wealth Group Limited v Strategic Media International Limited, HCMP 2586/2009 (3 May 2010), Fok J (as he then was) (at §5), adopting Ip Kam Wah v Fair City Group Ltd [2005] 4 HKLRD 168, per DHCJ To J (at §8):

“I accept that, unlike the plaintiff in an Order 14 application, the plaintiff in an originating summons procedure bears the burden of proof. When faced with conflicting affidavits from both parties, the court will be failing in its duty if it should take the assertions in the affidavits on their face value in isolation and jump to the conclusion that there is a triable issue without first considering whether the assertions in the affidavits are believable. I bear in mind the test laid down by Bokhary JA (as he then was) in Re Safe Rich Industries Ltd, Civil Appeal No 81 of 1994 that whether the assertions are believable is a question to be answered not by taking the assertions in isolation but by taking them in the contest of so much of the background as was either undisputed or beyond reasonable dispute. In an originating summons procedure, it is only when the court is satisfied after having undertaken that exercise that factual disputes could not be resolved on affidavit evidence that oral evidence or trial should be considered.”

19.  As mentioned, the defendants changed their stance and took out the summons for direction under O28, r8.  In other words, the defendants take the view, as they always do, that not only that they have a credible defence, but now also that the substantive argument of these proceedings on affidavits only will not be conducive to the just, expeditious and economical disposal of the dispute.  They say these proceedings should be turned into a writ action.  This must suggest that they take the view that their defence involves genuine and substantial factual dispute that could not be properly resolved other than by employing the mechanism of a writ action.

20.  At that juncture, the plaintiff had its stance to take.  If it was of the view that the issues in dispute raised by the defendants as revealed by the affidavits were either unsustainable or, even if assumed to be true as a matter of fact, would not afford them with a valid defence, its stance should have been to press on with the substantive argument of the originating summons and to fix the defendants’ summons to be heard at the same time.  However, the fact was that the plaintiff consented to adjourn the substantive argument of the originating summons to give way to the determination of the defendants’ summons first.

21.  Yet when the second master questioned whether the determination of the defendants’ summons would nevertheless involve the parties’ argument as to whether there exists genuine and substantive factual dispute, and therefore should be heard at the same time as the substantive argument, the plaintiff sought to endorse the master’s observation and to change its stance.

22.  Basically both parties changed their respective stances along the way.

23.  By adjourning to the judge for directions, the second master did not decide whether the defendants’ summons should be heard first or at the same time as the substantive argument of the originating summons, after, as counsel told me, the parties have already rehearsed before him essentially the same arguments now advanced before this court.

24.  The defendants argue that the plaintiff should not be allowed to resile from its consent, which caused the order dated 9 April 2018.  Reliance is placed on CML v LMH [2010] 1 HKLRD 821 at §§4-5, where it was held that the agreement underlying a consent order may be rescinded only in exceptional circumstances.

25.  It does not appear to me that one should immediately attribute the blame to the plaintiff, because the initiative to set aside the order by consent was that of the master, not the plaintiff. More importantly, the question before this court no longer entails whether or not the plaintiff should be allowed to resile from the previous consent, as the 9 April 2018 order has been set aside.

26.  The defendants argue that the test and approach involved in considering the substance of the originating summons differ materially from those in considering their summons.  Essentially, instead of examining all the contentions and determining the merits of the case in the substantive argument of the originating summons, the court, the defendants argue, would solely focus on whether there is genuine and substantial factual dispute when considering whether or not an order should be made under O28, r8.

27.  At least in the circumstances of the present case, where the parties have already filed their affidavits in support and in opposition of the originating summons respectively, the difference in test and approach suggested by the defendants sounds artificial. The court will assess the affidavit evidence to come to its view, be that for the purpose of determining the claim summarily or, when summary disposal of the originating summons is impossible, determining whether directions should be given under O28, r4 or r8.

28.  As far as the defendants are suggesting that the parties have to file further affidavit evidence for the purpose of their summons under O28, r8, I say this is the least expected on top of the affidavits already filed as mentioned.  The foundation for requesting the court to consider giving directions under O28, r4 or r8 on the basis of the existence of triable issues is expected to be discernable from the affidavits already filed.

29.  In other words, when the originating proceedings together with the parties’ affidavits came before the master, he should be in a position to consider if an order in disposal of the originating summons may be made summarily as envisaged under O28, r4(1).  If the answer is in the negative, directions should be given for the further conduct of the proceedings under O28, r4 or r8, as the case may be.  A formal application, such as what was taken out by the defendants in the present case, only serves to call upon the master to consider what he is supposed to do pursuant to O28, r4 or r8.

30.  There are of course cases where the answer to whether or not the originating proceedings may be summarily determined may not be readily apparent by the mere reading of the parties’ affidavits or without substantial substantive argument.  This is where the plaintiff, as mentioned, must make clear its stance.

31.  If the plaintiff stance is that after the substantive argument, albeit substantial in terms of the time to be taken, it will be demonstrated that the defendant has no valid or credible defence, the plaintiff will be pressing ahead with the substantive argument of the originating summons on affidavits akin to a summary judgment application as in Ip Kam Wah (above).  If this is the plaintiff’s stance, the originating summons should proceed to substantive argument on affidavits, and the question of direction under O28, r4 or r8, be it on the court’s own motion or upon a formal application already taken out, would be considered depending on the outcome of the substantive argument.

32.  Whether to press ahead with substantive argument of the originating summons on affidavits only must be a considered decision of the plaintiff.  The plaintiff must be prepared to assist the court by pointing out the precise basis on which he says that the issues in dispute raised by the defendant in the affidavit, even assuming to be true as a matter of fact, would afford the latter with no valid or credible defence.

33.  It should also be noted that whilst the case of Ip Kam Wah provides the guidance on the test to be applied in the substantive argument of an originating summons, the judgment in that case, in my view, is not intended to be an authority for the proposition that an originating summons must proceed to substantial substantive argument, akin to the hearing of a summary judgment application, for the purpose of ascertaining if the issues raised by the defendant afford him with a credible and valid defence.  The plaintiff should not press ahead with the substantive argument of the originating summons as if this is a trial run of his case with a view that directions for the further conduct of the case could be given if he fails to obtain judgment.  Substantive argument of the originating summons, to begin with, is not trial on affidavits.  The proper view, in principle, should not differ from that in respect of pressing ahead with a summary judgment application whilst a valid defence is discernable from the pleadings already filed in a writ action.  If the plaintiff is found to have unreasonably pressed ahead with the substantive argument, notwithstanding triable issues apparent from the affidavits, there may be consequence in terms of the costs of the hearing of the substantive argument.

34.  The present case has taken a series of unnecessary turns, first by the consent order on 9 April 2018, and then by second master’s setting aside of that order yet refraining from deciding whether the proceedings should proceed to substantive argument and whether the defendants’ summons should be heard first or at the same time as the substantive argument.  Regrettably the situation did not become clear after the hearing before this court, as this court has failed to attend to this matter until only now.  To the extent of the delay attributable to this court, I am indebted to the parties’ patience.

35.  Compensatory step should be taken now.

36.   The plaintiff must now consider its stance, namely, whether it indeed has basis for maintaining that the dispute raised by the defendants would in any event afford them with no valid and credible defence, and this would include even assuming the factual dispute[4] raised by the defendants to be true as alleged.  If the answer is in the affirmative, then the defendants’ summons under O28, r8 should be heard at the same time as the substantive argument of the originating summons.  Alternatively, if the plaintiff does not take such stance, then there should be no reason why the parties should not focus on the necessary directions for the further conduct of these proceedings pursuant to O28, r4 or r8.

37.  I would give the parties the opportunity to now focus their consideration on the above question, which they might not have done previously, and to address this court further.  Hopefully the above discussion would guide the parties to a sensible way forward.

Disposition

38.  I therefore direct the parties to address this court in writing on the above question within 14 days (such time shall run during the court vacation); and in the absence of agreement between the parties, this court will give directions for the further conduct of these proceedings, as well as costs, after considering the further submissions.  In the event that any oral hearing has to be fixed, either for substantive argument (if indeed so directed) or for direction, the same should be fixed to be held on the earliest available date and, if such date is available in this court, before this court.