THE ONE CREDIT LTD v. YEUNG YUEN FU

DCCJ 4600/2019

[2020] HKDC 10

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 4600 OF 2019

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REASONS FOR DECISION

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INTRODUCTION

1.  This is the defendant’s appeal against the Master’s decision on 2 December 2019 to strike out his defence and counterclaim with costs to the plaintiff summarily assessed at HK$700.00.  At the appeal hearing on 27 December 2019, the plaintiff was represented by Mr Wong Tak Ka of Messrs K.B. Chau & Co. (“Mr Wong”), and the defendant acted in person and was present.

2.  At the end of the hearing, I allowed the appeal, dismissed the plaintiff’s Inter Parte Summons dated 24 October 2019 (the “Summons”), set aside the costs order made by the learned Master, and ordered that costs of the Summons and this appeal be to the defendant in any event to be taxed if not agreed.  I also gave direction for the defendant to amend his defence and counterclaim.  I said that written reasons for my decision would be handed down in due course.  This I now do.

3.  Despite that the defendant is acting in person, his pleadings, notice of appeal and the supporting affidavit are all written in English.  As such, this Reasons for Decision is also written in English.  Should the defendant require translation of this Reasons for Decision to him in Punti, arrangement could be made with the court interpreter.

4.  An appeal from a master to a judge under Order 58, rule 1(1) of the Rules of the District Court (the “RDC”) is by way of an actual rehearing of the application which led to the order under appeal, and the judge treats the matter as though it came before him for the first time, save that the party appealing, even though the original application was not by him but against him, has the right as well as obligation to open the appeal.[1]

5.  In light of the said settled approach, I will in this Reasons for Decision consider afresh the plaintiff’s application to strike out the defendant’s defence and counterclaim.

PROCEDURAL IRREGULARITIES

6.  The decision of the learned Master stemmed from the plaintiff’s application by way of the Summons.  In it, the plaintiff sought to strike out the defendant’s defence and counterclaim.

7.  The Summons, however, did not specify the ground or grounds for an application under Order 18, rule 19 of the RDC.  It is a requirement that the same should be specified in a summons for striking out.[2]  Such specification is found, instead, under paragraph 3 of the affirmation of Mr Lui Fung Ho[3] (“Mr Lui”) filed on 24 October 2019 (“Lui’s Affirmation”) in support of the Summons.  It is stated therein the only ground relied on is that the defence and counterclaim disclosed no reasonable cause of defence.  Order 18, rule 19(1)(a) of the RDC is thus engaged.

8.  Pausing here, it is trite that for an application under Order 18, rule 19(1)(a) of the RDC, no evidence should be filed.[4]  As such, Lui’s Affirmation is inadmissible when this court considers the striking out application.[5]  It follows that I am not supposed to rely on Lui’s Affirmation to identify the ground that the plaintiff relies on to strike out the defence and counterclaim.  In any event, an omission in the Summons should not be salvaged by Lui’s Affirmation.

9.  Moreover, no letter has been tendered by the plaintiff to show compliance of the requirement under paragraph 5 of Practice Direction 19.1.  At the hearing, Mr Wong also confirmed that no such letter was ever issued to the defendant.  Paragraph 5 of Practice Direction 19.1 provides that in an application to strike out a pleading as disclosing no reasonable cause of action, the applicant shall inform the respondent of the ground in writing at least 5 clear days before the day fixed for the hearing.  Compliance with this direction is important, as the whole point of the framework is to give the other party adequate time to amend pleadings and/or file evidence and not to take him by surprise.[6]

10.  From the notes of the learned Master, the defendant was clearly taken aback during the hearing on 2 December 2019, when he had to answer to the application.  His reply was “我唔認識，我以為自我介紹” when the learned Master asked whether he agreed with the Summons.

11.  I appreciate that non-compliance of paragraph 5 of Practice Direction 19.1, on itself, might not lead to the Summons being dismissed.  This was confirmed by HH Judge M Ng (as she then was) in Kwan Kwok Leung v Wong Hei Yu Winny (unreported, DCCJ 5406/2007, 28 November 2008) at paragraph 47:-

“Secondly, even if Madam Wong failed to provide the broad grounds within the prescribed time as required under PD19.1, I am not persuaded (and Ms Tam did not suggest) that the striking out application should be dismissed. Re Boon Voon King & ors, ex p Nedcor Asia Ltd [1998] 2 HKLRD 458 established that practice directions are issued under the inherent power of the court to regulate its own process and not under the rules of the court or other statutory power, and that the purpose of practice directions is to ensure efficient, expeditious and economical despatch of the court’s business. Whilst the court does have inherent power to dismiss a summons, Re Langton (deceased), Langton v Lloyd’s Bank Ltd & ors [1960] 1 All ER 657 suggested it was not desirable to make an order to dismiss an application for breach of local practice directions.”

12.  Be that as it may, the combined effect of such non-compliance together with the irregularity as highlighted in paragraphs 7 and 8 above warrants serious consideration to have the Summons dismissed.  At the very least, the Summons should not have been processed unless and until the said irregularities were rectified.  However, for the reasons given below, I think it would be a waste of time and costs, and redundant, to go through such exercise.

THE STRIKING OUT APPLICATION

13.  I will in the sections below consider the plaintiff’s striking out application based on the ground under Order 18, rule 19(1)(a) of the RDC.  Before I do that, I will first set out the relevant principles.

Principles on striking out application

14.  The general principles concerning striking out of pleadings have been summarized by Hon Au-Yeung J in the case of K & L Gates v Navin Kumar Aggarwal & Ors (unreported, HCA 1061/2011, 20 May 2016), at paragraph 20:-

“(a) The Court will strike out a pleading when the applicant has shown that it is plain and obvious that the other party’s claim is bound to fail.

(b) There should be no trial upon affidavit. Disputed facts are to be taken in favour of the party sought to be struck out.

(c) 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.

(d) If the court does not think the matter to be clear beyond doubt or if it fails to be satisfied that there is no reasonable cause of action or that the proceedings are frivolous or vexatious, there should be no striking out.

(e) Where the legal viability of a cause of action is sensitive to the facts, an order to strike out should not be made.

(f) Although a strike out application can be made any stage in the proceedings, it ought to be made promptly and as a rule before the pleadings are closed.

(g)     The mere fact that the case is weak, and not likely to succeed, is no ground for striking it out.”

15.  In particular, for an application under Order 18, rule 19(1)(a) of the RDC, the following legal principles are applicable:-

“(1) First, this being an application under rule 19(1)(a) only, no evidence is admissible under rule 19(2). The Court will simply assume the facts as pleaded in the statement of claim to be proved and determine, on that basis, whether the pleading discloses a reasonable cause of action.

(2) Second, the question for the Court is whether the allegations as pleaded in the statement of claim disclose some cause of action or raises some question that ought to be tried. It is not concerned with an assessment of the strength or weakness of the case. The mere fact that the case is weak, and not likely to succeed, is no ground for striking it out. The Court would only strike out when it is impossible, and not just improbable, for the case to succeed.

(3) Third, where a pleading is defective only for want of particulars to which the other side is entitled, particulars (and not an order to strike out the pleading) should have been sought under Order 18, rule 12. The Court can properly refuse to strike out even a pleading seriously lacking in particularity if the defect is not the result of a blatant disregard of Court orders and can be remedied.

(4) Fourth, where a statement of claim does not disclose the cause of action relied upon but there is reason to believe that the case can be improved by amendment, the Court may give an opportunity to amend, even though the formulation of the amendment is not before the Court.”[7]

The plaintiff’s case

16.  As per the specially indorsed writ of summons issued on 26 August 2019, the plaintiff is a money lender licensed under the Money Lender’s Ordinance, Cap 163 (“MLO”).  On 24 January 2019, the plaintiff as the lender and the defendant as the borrower entered into a loan agreement (the “Loan Agreement”), under which a sum of HK$800,000.00 was lent by the plaintiff to the defendant (the “Loan”).  The Loan and interest thereon at the rate of 24% per annum shall be repaid by 72 monthly instalments.  The said monthly repayments fell on the 24^th day of each month starting from 24 February 2019.

17.  The defendant made prompt repayments from 24 February 2019 to 24 June 2019, but defaulted in the one fixed for 24 July 2019.  As such, the plaintiff, through its solicitors, issued a letter of demand against the defendant on 2 August 2019 (the “Demand Letter”), requesting for full repayment of the outstanding principal together with interest within 3 days from the date thereof, with the warning that failing compliance of the request, the plaintiff would institute legal proceedings against the defendant.

18.  In spite of the Demand Letter, the defendant failed to make repayment, giving rise to this action.  The plaintiff now claims the outstanding principal and interest in the sum of HK$798,081.07, further interest thereon at the contractual rate until full payment, and costs of this action on full indemnity basis.

The defendant’s case

19.  The defendant acknowledged service of the writ and gave notice of intention to defend on 4 September 2019.  In his homemade defence and counterclaim filed on 27 September 2019, the gist of his defence is that the plaintiff had failed to issue receipts for the repayments he made between February 2019 and 24 June 2019.  As per the letter dated 9 August 2019 annexed to the defence and counterclaim (the “Letter”), complaint was lodged by the defendant to the plaintiff for non-issuance of the said receipts.

20.  I note in passing that the defendant has made other denials and averments in his defence, but they are mostly out of sync and do not correspond with the paragraphs in the statement of claim that they aimed to answer.

21.  Turning now to his counterclaim, the defendant claims that he suffered loss and damage of HK$20,000.00 as costs for legal advices.  Apart from that, he also claims for loss and damage due to the need to seek advice from the court on when to restart repayment, and for an amount set aside to cover unreasonable interest and court charges.  Finally, in the prayer section of his counterclaim, he also asks for costs for obtaining transcripts of court hearings.

Discussion: whether the defence should be struck out

22.  I disagree with the plaintiff that there is no reasonable cause of defence.  The defendant, by the Letter, had requested for receipts of the repayments he had made to the plaintiff from February 2019 to 24 June 2019.  The Letter was dated 9 August 2019, after the Demand Letter was issued but before commencement of this action.  It could also be observed from the Letter that there were allegedly prior communications between the parties by email messages in early August 2019 concerning this matter.  Despite his use of the word “receipts” in the defence, properly understood, the defendant was seeking from the plaintiff a written record on the payments it had received from him.

23.  Section 19(1)(b) of the MLO provides:-

“(1) In respect of every agreement, whether made before or after the commencement of this Ordinance, for the repayment of money lent by a money lender, the money lender shall, on demand in writing being made by the borrower at any time during the continuance of the agreement and on tender by the borrower of the prescribed fee for expenses, supply to the borrower or, if the borrower so requires, to any person specified in that behalf in the demand, a statement (consisting of the original and a copy) signed by the money lender or his agent showing –

(a) ……

(b) the amount of any payment already received by the money lender in respect of the loan and the date on which it was made;

……”

24.  Where the said demand was made by the borrower, section 19(4) provides that:-

“If a money lender to whom a demand has been made under this section fails without reasonable excuse to comply therewith within 1 month after the demand has been made, he shall not, so long as the default continues, be entitled to sue for or recover any sum due under the agreement on account either of principal or interest, and interest shall not be chargeable in respect of the period of default.”

25.  In light of these statutory provisions, if the plaintiff had received such demand during continuance of the Loan Agreement but without reasonable excuse failed to provide a statement showing the amount of any payment it had received from the defendant within 1 month after the said email or the Letter was made, i.e. on or before 9 September 2019, it would be barred from commencing this action against him, or to recover any sum due under the Loan Agreement, and interest should not be chargeable in respect of the period of default.  In other words, the complaint raised by the defendant in his defence could possibly provide for a full defence to this action.

26.  Furthermore, I note from a number of cases that this line of defence was relied on by the borrowers under money lender actions, for example, Fast Billion Holdings Ltd v Sun Pui Yuk [2019] 2 HKLRD 906[8] and Hui Mei Ching t/a Diamond Dragon Finance Company v Tai Ngan Chiu [2019] HKCFI 650.[9]

27.  I must stress that I am not concerned with the merits of the defence raised by the defendant.  The mere fact that the case is weak, and not likely to succeed, is no ground for striking it out.  So long as the defence discloses some cause of action or raises some question that ought to be tried, it should not be struck out.

28.  For the above reasons, I find that the defence raised by the defendant does disclose a cause of defence or at the very least raises some questions that ought to be tried.

29.  I would mention in passing that during the appeal hearing, the defendant submitted a new line of defence, i.e. that he had made repayments for the 24 July 2019 and 24 August 2019 instalments, thus he was not in breach of the Loan Agreement.  If he were to rely on this defence, he would need to include it in his amended defence and counterclaim.

Discussion: whether the counterclaim should be struck out

30.  The Summons provided for striking out both the defence and the counterclaim.  The learned Master, when striking out the defence, also struck out the counterclaim, but did not specify the reason for doing so.[10]  But one could deduce that as the defendant’s counterclaim premised on his defence, it could not survive independently if the defence were struck out.  In light of my decision above, this is no longer the case.  I shall therefore proceed to consider whether the counterclaim should still be struck out under Order 18, rule 19(1)(a).

31.  For the first head of counterclaim, the HK$20,000.00 is a claim for costs of legal advices.  This is special rather than general damages, and particulars of the same should be given.[11]  But where a pleading is defective only in not containing particulars to which the other side is entitled, application should be made under Order 18, rule 12 of the RDC, and not for an order to strike out the pleading.[12]

32.  As to the other heads of counterclaim, I am baffled by them.  First, no legal advice would and could be given by the court.  Assuming that the defendant meant any direction or order to be given by the court, I cannot envisage a situation where the court would charge him for the same.  Second, regarding his claim for the amount set aside to cover unreasonable interest and court charges, again I query what he is asking for.  If he were to set aside some funds to pay for interest legally chargeable by the plaintiff, how is that a loss or damage to him?  And if the interest were unreasonable, why would the court order the same to be paid by him?  Moreover, what unreasonable court charges would there be?  Finally, I wonder why the defendant is already catering for the need to obtain court transcripts.

33.  Albeit the problems highlighted above, I do not think they call for the counterclaim or any part of it to be struck out.  As I have given directions for the defendant to amend his defence and counterclaim, the defects could be cured at the same time.

CONCLUSION

34.  Based on the reasons provided, the appeal is allowed and the Summons is dismissed.

35.  To improve on the clarity of his defence and counterclaim, amendments would be required.[13]  I have therefore given direction at the end of the appeal hearing that the defendant shall, within 28 days from the date thereof, i.e. on or before 24 January 2020, apply by way of a summons for leave to amend his defence and counterclaim.[14]  I also made the said application returnable on 6 February 2020 at 10:00 am at Court No. 15.

36.  Finally, I have ordered that the costs order made by the learned Master against the defendant be set aside.  Costs of the Summons and this appeal, including this hearing and the hearing on 2 December 2019, shall be paid by the plaintiff to the defendant in any event to be taxed if not agreed.