CHOW CHUN TIN v. CHOW SO NGOR

HCA 1794/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1794 OF 2009

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J U D G M E N T

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Introduction

1.  These are Order 14 proceedings.

2.  On 26 February this year, Master Levy gave the defendant conditional leave to defend the action upon her bringing into court the whole amount of the plaintiff’s claim, which is $1,657,437.40.  The defendant appealed against that order, contending that she should have unconditional leave to defend.  I heard the appeal, which I dismissed. 

3.  In my judgment of 15 June I upheld the Master’s order and directed that the full amount of the claim should be paid into court within 42 days of my judgment. At paragraph 28 I said that I had no evidence that the defendant could not afford to pay this amount in order to comply with the condition to defend the action, leaving it to her to make an application within 42 days to show cause why she could not.

4.  This she has now done, contending that she has no means to comply with the condition which should therefore be removed.

5.  I must now examine the evidence that has been filed in support of this application to decide whether I need to reduce the amount that I ordered to be paid or to do away with it altogether.

The Law

6.  It is helpful to begin by examining the legal principles which govern these situations before I consider the evidence which I need to have regard to.

7.  Quite rightly, Miss So, who makes the application on the defendant’s behalf, begins by referring to the case of  Yorke Motors (a firm) v Edwards [1982] 1 WLR 444, which identifies how the court should approach such matters and the burden that a defendant who has been made the subject of an order requiring him to pay an amount into court needs to discharge in lifting or at least ameliorating the conditions imposed on him.  Save for one additional aspect which I will refer to in a moment, the headnote to the report provides a sufficient summary. 

“It would be a wrongful exercise of discretion to order, as a condition of granting leave to defend an application for summary judgment under Rules of the Supreme Court Order 14, the payment of a sum which the defendant would never be able to pay, since that would be tantamount to giving judgment for the plaintiff notwithstanding the court’s opinion that there is an issue or dispute which ought to be tried, and that is so even though the court might consider the defence ‘shadowy’ or doubt the defendant’s bona fides. The defendant cannot complain because a financial condition is difficult for him to fulfil; he can complain only when a financial condition is imposed which it is impossible for him to fulfil and that impossibility was known or should have been known to the court by reason of the evidence placed before it. Where the defendant seeks to avoid or limit a financial condition by reason of his own impecuniosity, the onus is on him to put sufficient and proper evidence before the court, and in so doing he should make full and frank disclosure.”

9.  In addition to these considerations, it is also important to refer to what Lord Diplock said, which is that the fact that a man has no capital of his own does not mean that he cannot raise any capital.  He may have friends, he may have business associates, he may have relatives, all of whom can help in his hour of need.

10.  The case which has been advanced by the defendant is that she is a widow of limited means and that in such circumstances she is in no position to meet this obligation.

11.  With respect to her, I do not consider that this is a complete representation of her situation, nor is it an answer to what would be expected of a defendant in her position.  The fact is that she stands as administrator of her late husband’s estate, he having become indebted to the plaintiff, and that estate is not without means, which is a matter which I will return to presently.

12.  The law is that an administrator cannot only rely on his or her personal position when considering whether qua administrator he or she is able to meet an order for the payment of money into court.

13.  It is in this regard the issue of obtaining outside assistance and/or using some of the assets of the estate become relevant.  In relation to the obtaining of outside assistance, the Court of Appeal in Kwong Key Construction & Engineering Limited v Sunlink Limited [2003] 3 HKLRD K9 held that a defendant facing an Order 14 summons must satisfy the court that it is not only impossible to meet the conditions, but that its associates, directors or interested parties are unable to assist.  This before unconditional leave could be given.  This echoes what Lord Diplock had said in Yorke Motors v Edwards Supra. 

14.  In the case of Kwong Key Construction, no evidence had been adduced to deal with the issue of whether or not the defendant was able to obtain outside finance, either from its own directors or associates.  Additionally, the court held that a bald statement by a director that she had no money to hand was insufficient.

15.  An analogous situation is to be found concerning appeals where it is said security should be given as a condition for leave to appeal being given.

16.  In the case of Keary Developments v Tarmac Construction [1995] 3 All ER 534, Gibson LJ cited with approval the remarks of the late Bingham LJ, as he then was, in Kloeckner & Co., AG v Gatorial Overseas Incorporated [1990] CA Transcript 250, which is unreported:. 

“In my judgment, the approach to be adopted in cases where, as here, there are good arguable grounds of appeal ... but the appellant contents that the award of security will stifle the appeal, should be the same as the approach adopted in Yorke. The approach, in my view, should be that the onus is on the appellant to satisfy the Court of Appeal that the award of security for costs would prevent the appeal from being pursued, and that it is not sufficient for an appellant to show that he does not have the assets in his own personal resources. As in the Yorke Motors case, the appellate must in my view, show not only that he does not have the money himself, but that he is unable to raise the money from anywhere else.”

17.  On the facts of Keary at page 534H, Gibson LJ said:

“There is no evidence of the directors’ who were the two sons of the senior Keary, there was no evidence of their means, apart from the fact that they were the owners of a house which was being let to the plaintiff at an annual rate of £36,000 a year, that house being mortgaged to a bank for £200,000. There were no accounts of the plaintiff later than the accounts for the period ended 31 May 1991, the directors of the plaintiff being in flagrant breach of their statutory duties in this regard. There is no evidence of who is financing the current litigation, nor how it is being financed.”

18.  These authorities related to the position of companies.  Mr Earl Deng, for the plaintiff, says that the position of a deceased’s estate is no different.  In the case of a company, it must furnish proof of the financial standing of its directors, shareholdings and associated companies in discharging its burden of showing the impossibility of meeting the condition.  In the case of a deceased’s estate, rule 21 of the Non-Contentious Probate Rules, Cap.10A, provides the order of priority for the grant of letters of administration.  The grant accords a beneficiary a fiduciary position in relation to the estate, such as that imposed on a director or a shareholder towards a limited company.

19.  As a company needs to disclose assets of its directors and shareholders or other interested persons who fund litigation involving the company, Mr Deng submits that an identical position is held by an administrator.  The court must be satisfied not only that the estate is impecunious, but at least that all the immediate beneficiaries, including in this case the administrator and the deceased’s issue are impecunious and therefore unable to assist, and so, submits Mr Deng, the administrator who acts on behalf of the estate must prove not only that the estate is impecunious or that its assets are tied up, but also that the beneficiaries, including herself, are unable to contribute.

20.  In my judgment, Mr Deng’s analysis is the correct one and it now becomes necessary to address the evidence to see if that impossibility has been made out.

The Evidence

21.  Mr Deng has referred to a number of areas which the defendant should have disclosed in discharging the onus on her.  Firstly, what has happened to the assets of the deceased’s business which was still trading weeks before his death? 

22.  Mr Deng comments that it would be unlikely that a business which started in 1960 would have disappeared overnight.  He has drawn attention to assets such as stock; capital items, such as machinery; furniture and raw materials and accounts receivable.  He wonders whether any of these assets were transferred to Tung Sun Industrial Company Limited set up by the deceased’s son Kenneth. Also, there has been no explanation put forward as to the business of this new company which bears the same trade name as the deceased’s company.

23.  Then there is the question of the ability of the defendant’s two sons, Kenneth and Wallace, who are successful businessmen in their own right, who were owners of the workshop adjoining their late father’s at the 10th Floor, Million Fortune Industrial Centre. 

24.  It seems to me that it is quite insufficient for the defendant to point to the modesty of her own financial position and not to have dealt with these points in her affirmation in support of the application.

25.  Related to her own limited resources, there has been no mention by her of who is funding the litigation on her behalf.  Presumably she lacks the means to do so herself.

26.  Finally, there is the value of the estate itself, the estate-owned properties that were once valued at $19.2 million.  Now these have become charged to the extent of $14 million and the interest on this debt is $100,000 a month.  There is no doubt that these arrangements have been put in place by her sons rather than by her.  Nobody has done anything to rearrange matters so as to preserve the value of the estate. 

27.  The injunction which is in place only attaches to preserve property to the extent of the plaintiff’s claim of $1.657 million.  There is no doubt that the properties have been manipulated, with sales at undervalues of some of the properties to companies held by members of the deceased’s family.  The injunction was obtained to at least preserve an amount equal to the claim.

Conclusion

28.  Far from demonstrating that it is impossible to meet the conditions, it is clear from an examination of the evidence that the condition can easily be met just from the sale of some of the properties themselves, which the plaintiff is willing to co-operate in in relation to varying the injunction for that to happen; this, quite apart from the absence of evidence as to outside assistance from her sons, which the defendant would in circumstances such as these, be expected to turn to. 

29.  Miss So has focused her application to remove the condition, much too narrowly, on the defendant herself.

30.  For all of the reasons which I have referred to, the defendant has failed to discharge the burden on her. 

31.  The application will therefore be dismissed with costs.

32.  In order to accommodate the defendant to arrange her affairs in relation to the payment in of the total amount of the claim, I will give her a further 14 days from today, which when one considers all the time that has been available since Master Levy made the original order in February, ought to be sufficient.