HKMC MORTGAGE MANAGEMENT LTD v. TSE WING IP AND OTHERS

HCMP 348/2014

[2023] HKCFI 208

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 348 OF 2014

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BETWEEN

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(By Original Originating Summons)

AND BETWEEN

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(By Order to Carry On Proceedings dated 23 September 2016)

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REVIEW OF TAXATION

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1.  Pursuant to the order of Deputy High Court Judge Kenneth Wong dated 11 July 2019, the 2^nd Defendant LUK TSAN CHUEN (陸贊泉) shall pay the Plaintiffs LEE CHAU FA (李秋花) and WONG SUET YIU (王雪瑤) costs of the proceedings, to be taxed if not agreed (“the Costs Order”).

2.  The 2^nd Defendant is legally aided; the Plaintiffs are non-aided persons.

Taxation Hearing on 21 September 2022

3.  Pursuant to the Costs Order, the Plaintiffs commenced taxation proceedings against the 2^nd Defendant on 28 September 2021. Taxation hearing was conducted on 21 September 2022.

4.  Preliminary issues of taxation included, inter alia, the application of section 16C of the Legal Aid Ordinance Cap 91, which lists out those non-aided persons whose costs shall be paid by the Director of Legal Aid (“DLA”).

5.  As summarized by the Court of Final Appeal in Common Luck Investment Ltd v Director of Legal Aid, FACV 1/2002, 30 July 2002, there are seven situations in which a non-aided person who has been awarded costs against a legally-aided person can recover such costs from DLA. They are:

(1) any claim to which he was a defendant (s 16C(1)(b)(i));

(2) any petition to which he was a respondent (s 16C(1)(b)(i));

(3) any appeal to which he was a respondent (s 16C(1)(b)(i));

(4) any counterclaim to which he was a defendant to counterclaim (s 16C(1)(b)(ia));

(5) any cross-petition to which he was the respondent (s 16C(1)(b)(ia));

(6) any cross-appeal to which he was the respondent to cross-appeal (s 16C(1)(b)(ia)); and

(7) an appeal and the proceedings below even where he was the appellant if the legally-aided person had been the plaintiff below (s 16C(1)(b)(ib)).

6.  DLA relied on the said provisions to argue that although the Costs Order provides for “costs of the proceedings”, the Plaintiffs are only entitled to the costs of the 2^nd Defendant’s counterclaim, not the costs of the main claim (“Section 16C Issue”).

7.  At the hearing, I questioned why no directions or clarification regarding the scope of the Costs Order was sought from the trial Judge but raising it as a preliminary issue of taxation. DLA submitted that no clarification is necessary because the Costs Order should not affect the statutory operation of section 16C and it can only be enforced to such extent as permitted by section 16C. For the purpose of this review, it is not necessary for me to determine the nature and extent of the statutory operation as contended by DLA. However, in light of the unfettered discretion of the court on the issue of costs, such contention remains questionable.

8.  No matter how, I am of the view that the Section 16C Issue in these taxation proceedings could have been avoided. In the first place, parties ought to have promptly addressed the trial Judge on the issue, so that the trial Judge could consider what costs order to make with an eye to the section 16C implications. Further and/or alternatively, subsequent to the making of the Costs Order, directions or clarification on the scope of “costs of the proceedings” should have been sought from the trial Judge. However, no attempt was made by either party.

9.  In spite of the above, taking into account the special feature of the Costs Order and the background against which it was made (as set out in paragraphs 18 – 24 below), I acceded to parties’ request to determine the Section 16C Issue.

10.  Ruling was delivered ex tempore with brief reasons for decision. I ruled against DLA and determined that section 16C does not apply.

11.  Upon my determination, DLA readily reached settlement with the Plaintiffs on all the outstanding disputed items of costs. In lieu of taxation, the agreed quantum of costs was sanctioned by the court; the Plaintiffs’ Bill of Costs recorded as taxed.

Review of Taxation

12.  By the Appointment to Review Taxation filed on 5 October 2022, DLA seeks review of my ruling for an order that section 16C do apply, and the agreed quantum of costs should be adjusted accordingly to award the Plaintiffs only the costs of the 2^nd Defendant’s counterclaim.

13.  The Plaintiffs advanced the following two preliminary arguments that the court should not entertain DLA’s review.

(a) O 62 r 33(1)(a) RHC provides that any party to any taxation proceedings who is dissatisfied with the allowance or disallowance in whole or in part of any item by a taxing master, or with the amount allowed by a taxing master in respect of any item may apply to the taxing master to review his decision in respect of that item. The Plaintiffs argued that DLA’s review is not on any particular item of costs and/or the amount, therefore the challenge of Master’s decision of a preliminary issue is beyond the scope of a review and should be by way of an appeal to a Judge.

(b) DLA is not entitled to revoke the binding settlement agreement concluded after the determination of the Section 16C Issue.

14.  I reject the Plaintiffs’ first argument on two grounds. Firstly, O 62 r 33(1)(a) RHC should be interpreted wide enough to give the meaning that any party who is dissatisfied with the outcome of taxation is entitled to seek review. There is no question that the determination of a preliminary issue would directly or indirectly affect the quantum of costs and/or interest. It is connected to the outcome of taxation and is therefore subject to review.

15.  Secondly, O 62 r 33(1)(b) RHC provides that a party may not apply to a judge for an order to review the decision until after its review by the taxing master. Therefore, DLA’s review is a procedural step properly taken.

16.  On the Plaintiffs’ second argument, I agree that DLA is not entitled to revoke the settlement agreement. In reaching the settlement agreement with the Plaintiffs and presenting it for the court’s sanction, DLA did not reserve its right nor express that the agreed quantum was subject to and/or without prejudice to its right to challenge the decision of the Section 16C Issue. I find that the settlement agreement binds the parties, and it is unfair and unequitable to allow the matter to be re-opened.

17.  For this reason alone, this review is bound to fail. For the sake of completeness, I proceed to review my determination on the Section 16C Issue.

Special Feature of the Costs Order

18.  The Costs Order was made after trial of the interpreter proceedings under which the Plaintiffs and the 2^nd Defendant competed for a sum of HK$1,938,258.05, paid into court by HKMC Mortgage Management Limited, the plaintiff by the Original Originating Summons (“the Mortgagee”).

19.  The Costs Order bears a special feature. Costs taxed (if not agreed) are ordered to be paid out of the Plaintiffs’ lien attached to the said payment in the court.

20.  The background to the said payment into court by the Mortgagee is briefly as follows.

(1) In 2008, the 2^nd Defendant purchased a property in Tsuen Wan (“the Property”).

(2) In 2010, the 2^nd Defendant executed an assignment to assign the Property to the 1^st Defendant. On the same date, the 1^st Defendant executed a mortgage with a bank which subsequently transferred the mortgage to the Mortgagee.

(3) The 2^nd Defendant’s case is that the sale and purchase between him and the 1^st Defendant was in fact a sham. The money obtained from the mortgage was to repay debts he owed to the 1^st Defendant. The 1^st Defendant did not pay any purchase money to the 2^nd Defendant, and was holding the Property on trust for him.

(4) In 2013, without the 2^nd Defendant’s prior knowledge, the 1^st Defendant purported to sell the Property to the Plaintiffs.

(5) Since the 1^st and/or 2^nd Defendants defaulted repayment of the mortgage loan, the Mortgagee commenced this mortgagee action against them. The Mortgagee was granted possession of the Property which was then sold. After deducting the outstanding mortgage loan and legal costs and expenses, the balance of proceeds in the amount of HK$1,938,258.05 was paid into court.

21.  As regards the 1^st Defendant’s purported sale of the Property to the Plaintiffs, the 1^st Defendant failed to prove good title to the Property. The Plaintiffs accepted the 1^st Defendant’s repudiatory breach, terminated the formal agreement and issued an originating summons under HCMP 2804/2013 against the 1^st Defendant for loss suffered as a result of the breach.

22.  On the 1^st Defendant’s admission, judgment under HCMP 2804/2013 was entered in favor of the Plaintiffs. The trial Judge held that the Plaintiffs are bona fide purchasers for valuable consideration; they have an equitable lien over the Property for their loss and damage suffered by reason of the 1^st Defendant’s breach.

23.  By virtue of its earlier registration, the Mortgagee has priority over the Plaintiffs under the formal agreement and the Plaintiffs’ equitable lien derived from it. The Plaintiffs’ lien followed the sale of the Property by the Mortgagee and after the sale is attached to the balance of proceeds.

24.  The court therefore ordered that the Plaintiffs be paid out of the court from the balance of proceeds (a) return of deposit, (b) wasted conveyancing legal cost and expenses, (c) loss of bargains, (d) interest, (e) costs incurred in the proceedings under HCMP 2804/2013, and (f) costs of the interpreter proceedings (“the Plaintiffs’ Lien”).

25.  By reason of the above, the Plaintiffs are not recovering costs from DLA. Costs of the proceedings are to be paid out of the Plaintiffs’ Lien attached to the balance of the proceeds paid into court. Section 16C therefore does not apply.

26.  DLA also argued that upon satisfying the judgment and costs from the balance of proceeds paid into the court, net balance recoverable by the 2^nd Defendant is subject to DLA’s first charge, therefore DLA may be prejudiced if section 16C is held not to apply. This is a non-point. The legislative intent of section 16C is not to protect DLA’s right of first charge.

27.  The review has no merits. As regards costs of the review, the 2^nd Defendant who was present at the taxation hearing on 21 September 2022 has agreed that costs of and occasioned by the Section 16C Issue, if awarded to the Plaintiffs, be paid out of the Plaintiffs’ Lien attached to the balance of proceeds paid into court.

Conclusion

28.  The review of taxation is dismissed.

29.  I make an order nisi that costs of the review of taxation be to the Plaintiffs, to be summarily assessed and paid out from the Plaintiffs’ lien attached to the balance of proceeds paid into court.

30.  The order nisi shall become absolute unless an application to vary is made within 14 days from today.

31.  Directions in respect of summary assessment by paper disposal:

(a) Within 7 days after the nisi order becomes absolute, the Plaintiffs do lodge with the court and serve on the Director of Legal Aid the Statement of Costs;

(b) Leave for the Director of Legal Aid to lodge with the court and serve on the Plaintiffs its written response within 7 days thereafter;

(c) No further submission shall be lodged without leave of the court.