BROUGHTON, IAN MICHAEL v. LEUNG LOK HANG JANICE

HCSA 31/2015
HCSA 35/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

SMALL CLAIMS TRIBUNAL APPEAL NO. 31 and 35 OF 2015

(ON APPEAL FROM SMALL CLAIMS TRIBUNAL CLAIM
NO. 2660 OF 2015)

____________

____________

(Heard together)

________________

DECISION

________________

1.There are two applications for leave to appeal against two orders made by the adjudicator, Mr Timon Shum on 1 June 2015 (“the first order”) and on 12 June 2015 (“the second order”) respectively.

2.The first order was made on the applicant’s application to set aside an award made on 9 March 2015 in the absence of the applicant.

3.By the first order, the adjudicator ordered:

(a) The award/order dated 9 March 2015 be set aside on condition that the (applicant) do make payment of HK$30,140 into the Small Claims Tribunal as security on or before 15 June 2015, which sum shall not be released without an order of the tribunal.

(b) Upon compliance with the condition, the (applicant) do file into the tribunal and serve on the claimant by registered post all witness statements, defence and supporting documents (if any) on or before 15 June 2015.

(c) The case be adjourned to 6 July 2015, 2:30 pm, for mention in court no 12.

(d) Should the (applicant) fail to comply with the condition, the award/order dated 9 March 2015 shall stand and the hearing date on 6 July 2015 shall be vacated.

4.The second order was made in response to the filing of a purported counterclaim by the applicant on 11 June 2015 before the award was set aside. The applicant also requested for the counterclaim to be transferred to the Court of First Instance under section 10(1) of the Small Claims Tribunal Ordinance, Cap 338 so that execution on the judgment could be stayed under section 10(2).

5.The adjudicator replied to the applicant as follows:

(1) The (applicant) has not filed any counterclaim in this case.

(2) Therefore, there is no issue of transferring any counterclaim to the Court of First Instance.

(3) The order dated 1 June 2015 stands.

6.The applicant treated this reply as an order and it is referred to herein as the second order.

The law for application for leave

7.An application for leave to appeal from an award of an adjudicator of the tribunal is governed by section 28(1) of the Small Claims Tribunal. It provides that:

“(1) Any party who is aggrieved by a decision of the tribunal-

(a) on any ground involving a question of law alone; or

(b) on the ground that the claim was outside the jurisdiction of the tribunal,

may apply to the Court of First Instance for leave to appeal and the Court of First Instance may grant such leave if it thinks fit.”

Hence, leave can only be granted if the adjudicator in making the decision has erred in law or gone beyond the jurisdiction of the tribunal.

8.The applicant’s grounds of appeal are very comprehensive and covered many number of points. She repeated these points in her verbal submissions at the hearing of the application on 4 August 2015.

Application against the first order

9.I now deal with the application for leave to appeal against the first order.

10.The award on 9 March 2015 was made on a claim by the claimant for balance of payment at HK$30,000 for the sale of 1,000 shares of a company called International Tutors Ltd (“the Company”) by the claimant to the applicant.

11.The claim was filed on 19 January 2015. A call-over hearing was fixed on 9 March 2015. The applicant filed an application on 26 February 2015 for an adjournment of the call-over hearing and for the claim to be tried together with SCTC 261/2015.

12.The adjudicator did not adjourn the call-over hearing. He said in §6 of his reasons for decision dated 25 July 2015 (“the Reasons”) on why he did not grant the adjournment.

“6. Ms Leung informed me that she did not attend the hearing 9 March 2015 because she was not in Hong Kong. She was not suggesting that she was unaware of the hearing date. In fact, Ms Leung filed an application for adjournment on 26 February 2015 in which she also stated her request to enjoin this case with SCTC 261/2015. She said that she and her representative would not be in Hong Kong on 9 March 2015. The application was not supported by any documents such as flight tickets. The tribunal replied to her by letter dated 26 February 2015 that the matters raised by her would be dealt with at the call-over hearing on 9 March 2015. But Ms Leung said she did not receive this reply letter from the tribunal. I find her explanation dubious.”

13.It is thus clear that the adjudicator did not entertain the application to adjourn because of the lack of supporting evidence for the application. I cannot say that the adjudicator was wrong on this.

14.The applicant did not appear at the call-over hearing on 9 March 2015 and the adjudicator made the award as follows:

(a) The Defendant do pay the Claimant the sum of HK$30,000.

(b) The Defendant do pay the Claimant the costs of HK$140.

(c) There be post-judgment interest on the judgment sum (including costs) at the judgment rate from the date of the award until satisfaction.

15.In fact, the applicant had, before applying for an adjournment on 26 February 2015, applied earlier on 13 February 2015 to strike out the claim on the ground of want of legal basis. The adjudicator dealt with this application in §10 of the Reasons as follows:

“10. While I was aware that Ms Leung in her Defence filed on 13 February 2015 mentioned an application to strike out the claim on the ground that it lacked legal basis, I did not find any sufficient ground for striking out. Besides, Ms Leung did not appear at the call-over hearing on 9 March 2015 to pursue her striking out application. Mr Broughton confirmed to the tribunal that the contents of the claim form (Form 2) and the supporting documents submitted were all true and correct. His claim is a simple claim for balance of payment for shares transferred. I was satisfied that Mr Broughton claim was proved and, therefore, I entered the Judgment against Ms Leung.”

16.The applicant then applied on 12 March 2015 to set aside the award. This application was heard on 11 May 2015 but was adjourned to 1 June 2015 for reasons of the applicant’s ill health.

17.The adjudicator framed the issues in this application in §§ 4 and 5 of the Reasons. He said:

“4. According to Section 16(1) of the Small Claims Tribunal Ordinance, the hearing of proceedings in the tribunal shall be conducted in an informal manner. But I am of the view that in deciding whether the Judgment should be set aside, reference can be made to Order 13, rule 9 of the Rules of the High Court (Cap. 4) and the legal principles stated in Hong Kong Civil Procedure 2015, Volume 1, under paragraphs 13/9/1 to 13/9/25, which are instructive.

5. There are 2 issues that I need to consider:

a. Whether Ms Leung can provide a satisfactory explanation for her absence on 9 March 2015.

b. Whether Ms Leung can show that she has a defence to Mr Broughton’s claim which has a real prospect of success.”

18.I agree with the adjudicator on the framing of issues for the application.

19.The adjudicator then considered the applicant’s explanation for her absence at the call-over hearing on 9 March 2015 in §§6 to 9 of the Reasons. I have already quoted §6 above. §§7 to 9 read:

“Reasons for absence on 9 March 2015

7. Even one fully accepts Ms Leung’s version that she did not receive the reply letter dated 26 February 2015 from the tribunal, it is clear that Ms Leung should be fully aware that the tribunal had never granted her application for adjournment. When there was no approval for her application, it was incumbent on Ms Leung to attend the scheduled hearing personally on 9 March 2015 or at least send an authorised representative. Ms Leung had failed to do both.

8. At the hearing of the application to set aside the Judgment, Ms Leung had also failed to file any documentary proof of her absence from Hong Kong on 9 March 2015.

9. I find that Ms Leung has failed to provide a satisfactory reason for her absence on 9 March 2015. She was fully aware of the hearing date and that the tribunal had never granted her application for adjournment. The Judgement is a regular one.”

20.I do not think this decision can be faulted.

21.Nevertheless, despite the rejection of the explanation for absence, the adjudicator still proceeded to consider the merits of the applicant’s defence.

22.Regarding the nature of the claim, the adjudicator found that it was based on two Memoranda of Understanding both dated 29 August 2013 and the effect of which was to provide for the transfer of 1,000 shares of the Company by the claimant to the applicant in return for the payment by the applicant to the claimant HK$150,000. The applicant only paid HK$120,000 and the claimant was suing her for the balance of HK$30,000.

23.The adjudicator then dealt with the grounds in the applicant’s defence filed on 26 February 2015 in §§20 to 30 of the Reasons as follows:

“Memoranda of understanding not legal documents

20. Ms Leung submitted that apart from the 1^st MOU and the 2^nd MOU, there were 2 other memoranda of understanding. The third one is one between Mr James ffitzRoy and Mr Broughton dated 11 June 2014 (‘the 3^rd MOU’). The forth one is one between Mr Broughton, as shareholder of the Company, Ms Leung, as shareholder of the Company and the Company dated 11 June 2014 (‘the 4^th MOU’). Ms Leung had not produced the 3^rd MOU and the 4^th MOU to the tribunal for consideration. As said earlier, from the 1^st MOU and the 2^nd MOU one could deduce an agreement between Mr Broughton and Ms Leung under which he will sell 1,000 shares to her at the price of HK$150,000. Ms Leung accepted the existence of this agreement.

21. For the present purpose, I only need to consider whether Ms Leung can show that she has a meritorious defence to the claim so that she does not have to pay the balance sum of HK$30,000. Ms Leung claimed that all the memoranda of understanding were not intended to be legal documents. I cannot comment on the 3^rd MOU and the 4^th MOU as she had not provided the same. But looking at the 1^st MOU and the 2^nd MOU, both of them have a clause under the heading of ‘Legal Jurisdiction’ which states that it is governed by contract law in the Hong Kong Courts. This clearly indicates that the parties intended the 1^st MOU and the 2^nd MOU to be legal documents. I am not impressed by Ms Leung’s contention.

Mr James ffitzRoy not a party

22. Another point raised by Ms Leung is that Mr James ffitzRoy is a not a party in this case. The 1^st MOU is between Mr James ffitzRoy and Mr Broughton, as directors of the Company on the one part and Ms Leung on the other part. The 2^nd MOU is between Mr James ffitzRoy and Mr Broughton. If Mr Broughton is just suing for an obligation owed to him by Ms Leung, I do not see any need for Mr ffitzRoy to be a party. Mr Broughton can bring a case on his own. Ms Leung’s complaint is not valid.

Mr Broughton in breach of memoranda of understanding

23. Ms Leung alleged that Mr Broughton is in breach of the memoranda of understanding rendering them null and void and the affected parties reserve their right to sue Mr Broughton in the High Court for damages over HK$1 million. This is only a bare allegation without any evidence in support. Even assuming that Ms Leung’s allegation of breach is true, it does not necessarily follow that all the memoranda of understanding will become null and void. The innocent parties may bring a legal case against Mr Broughton if he is in breach of the memoranda of understanding. But Ms Leung had failed to specify what wrong Mr Broughton had done to her and what damage she had suffered. Her bare allegation of breach does not provide her with a defence to Mr Broughton’s claim.

Application to strike out claim

24. Ms Leung in her Defence mentioned an application to strike out the claim on the ground that it lacked legal basis. As indicated earlier, I do not find any sufficient ground for striking out. That was the reason I entered the Judgment against her. Besides, Ms Leung did not appear at the call-over hearing on 9 March 2015 to pursue her striking out application. If she would like to pursue now, this striking out application should only be entertained after her application to set aside the Judgment is granted.

SCTC 261/2015

25. Ms Leung mentioned another Small Claims Tribunal case SCTC 261/2015 in which Mr Broughton is suing Mr ffitzRoy for HK$50,000 as payment for the shares in the Company transferred to him. She said that this case should be enjoined to SCTC 261/2015.

26. The 2 cases obviously are concerned with different subject matters. The case before me is about whether Ms Leung has any obligation to pay HK$30,000 to Mr Broughton. SCTC 261/2015 is about whether Mr ffitzRoy has any obligation to pay Mr Broughton. I do not see any strong reason as to why they should be heard together. In any event, whether they should be heard together should only be decided after Ms Leung’s application to set aside the Judgment is granted. Ms Leung cannot use this joinder argument as a ground for setting aside.

Small Claims Tribunal has no jurisdiction

27. Ms Leung submitted that the Small Claims Tribunal has no jurisdiction in this case. This point is without basis. If Mr Broughton is claiming against Ms Leung for the return of the 1,000 shares, then the Small Claims Tribunal has no power to deal with the matter. But Mr Broughton is claiming for non-payment for shares transferred in the sum of HK$30,000. This is a simple monetary claim and is within the jurisdiction of the Small Claims Tribunal.

Transfer to the High Court

28. Ms Leung stated that she would reserve her right to transfer this case to the High Court. I do not see any reason why this simple case should be transferred to the High Court. In any event, any application for transfer should only be entertained if Ms Leung’s application to set aside is granted (See: Desir, Anthony C v Knight Frank (Services) Limited & Others, HCSA 36/2013, decided by Deputy High Court Marlene Ng and Victor Chiu v Charter View Development Limited, HCSA 30/2007, decided by Deputy High Court Judge L Chan).

Application for representation

29. In her Defence, Ms Leung made a request that she be represented by the Company’s Legal Officer in this case. At the hearing on 11 May 2015 and 1 June 2015, Ms Leung did not mention this again but made the application to set aside before me. She was capable of doing so and I did not see any need why she should be represented by another person who has no connection to this case. In any event, no legal representation is allowed according to Section 19 of the Small Claims Tribunal Ordinance.

Conclusion

30. In my view, the points raised by Ms Leung are suspicious. I doubt whether they will afford her with a defence if the case goes to trial. But I have discretion in deciding whether to set aside the Judgment. At this stage, I am not prepared to deny Ms Leung of an opportunity to defend totally. But I believe stringent conditions must be imposed on her in order to be fair to Mr Broughton. She should pay into the Small Claims Tribunal the claim amount of HK$30,000 and the costs of HK$140 as a condition for setting aside the Judgment.”

24.Having considered the analyses and conclusion of the adjudicator, I cannot see that the adjudicator in making the first order has committed any error of law or decided anything beyond the jurisdiction of the tribunal.

25.The applicant complained that the adjudicator had not requested for documentary proof of her absence on 9 March 2015 and that such proof, if asked for, could have been provided with ease. She also purported to provide such proof as exhibit G to her grounds of application for leave.

26.She also complained that if the tribunal should have found her reasons for adjournment insufficient, the tribunal should have asked for further details.

27.I disagree with such attitude. If the applicant should have found the need to make an application, it is always incumbent on her to provide all the evidence to support her application. She should not wait for the request from the tribunal before providing the evidence or further details of her reasons. The tribunal is not supposed to act as her legal adviser.

28.Furthermore, section 29(2) of the Ordinance provides that:

“(2) On an appeal for which it has granted leave under section 28, the Court of First Instance may- (Amended 79 of 1981 s. 10; 49 of 1988 s. 2)

(a) draw any inference of fact; and

(b) make such order as to costs and expenses as it thinks fit,

But may not-

(i) reverse or vary any determination made by the tribunal on questions of fact; or

(ii) receive further evidence.”

29.If further evidence cannot be received at the hearing of an appeal, then no leave to appeal should be granted on the basis of further evidence as such evidence cannot be considered on the appeal. I should therefore ignore such documentary proof that the applicant now seeks to tender.

30.In any case, in addition to providing a proper explanation for her absence at the call-over hearing, the applicant had also to demonstrate that her defence has a real prospect of success.

31.The applicant then submitted that she had no one to represent her as the only person who was able to do so was also unavailable on the same day. She also received no reply from the tribunal on her application. She therefore submitted that it was disingenuous for the adjudicator to argue that she could have sent a representative to the call-over hearing.

32.I think it is presumptuous for the applicant to criticize the adjudicator in such term. The tribunal had already replied to her application on 26 February 2015 though she claimed that she had not received the reply. The tribunal was also unaware of her assertion that there was only one person who was in a position to represent her.

33.The applicant then argued that despite her absence, the tribunal could refrain from giving the award if it was not satisfied that the claimant was entitled to it. But the tribunal was satisfied that the claimant was indeed entitled to the award on the basis of his simple claim. This ground therefore has no merit either.

34.The applicant then complained against the imposition of conditions of payment for setting aside the award. She said she had a right to defend herself and the conditions imposed were unreasonable and contrary to nature justice and amounted to an assumption that the claim was correct before hearing her. She also submitted that such conditions imposed a financial burden on her before the claim was proved and was thus wrong in law.

35.In a nut-shell, she complained that it was wrong in law for the tribunal to impose a condition of payment for setting aside the award. However, such condition is frequently imposed by the tribunal for setting aside awards. As a matter of principle, it is not an error in law. I find that this ground has no merit.

36.The applicant then complained in the next ground that the tribunal did not enquire into the background or context of the Memoranda of Understanding and did not allow the applicant to raise issues relating to the background and context of the Memoranda before rejecting the defence case that the Memoranda were just “gentlemen’s agreements”.

37.The adjudicator has already referred to the provisions of the Memoranda showing that the Memoranda were intended to have legal effect and not mere “gentlemen’s agreements”. The applicant’s bare assertion to the contrary is of no use. The applicant has also failed to list out under this ground what issues she would raise that would relate to the background and context of the Memoranda. I therefore dismiss this ground of appeal.

38.The applicant’s next ground is that the Memoranda were made between the directors of the Company and the applicant. The claimant was only one of the directors and hence not an integral party to the Memoranda and had no cause of action against the applicant.

39.The applicant further submitted in the next ground that she had agreed to the Memoranda only on the basis that she was agreeing with two directors of the Company jointly. Thus it was wrong in law not to grant her the right to be heard in regard to the context in which the Memoranda were discussed.

40.The adjudicator summarized in §19 of the Reasons the stance of the applicant on the claim as follows:

“19. At the hearing of the setting aside application, Ms Leung accepted that 1,000 shares were transferred to her by Mr Broughton and she needed to pay HK$150,000. She agreed that she had paid HK$120,000 but did not agree that she needed to pay the balance of HK$30,000. She also accepted that the parties had entered the 1^st MOU and the 2^nd MOU. She relied on the Defence filed on 26 February 2015. …”

41.In the light of this concession and the fact that the applicant had indeed paid the claimant HK$120,000, these two grounds are just groundless assertions. Furthermore, the applicant did not state in the ground what context she would refer to and the relevance of such context to the claim. I therefore dismiss these two grounds.

42.The applicant’s next ground is non est factum. But the applicant submitted in this ground that this defence is available to the extent that the claimant is suing her separately from the other director.

43.The defence of non est factum is available when the signatory of a contractual document says that he was not aware of or has been misled as to the contents of the document when he signed it. It cannot be a conditional defence and be available if the claimant is suing the applicant separately from the other director but not available if the claimant is suing the other director as well. Furthermore, the applicant is not saying that she did not know what she was signing when she signed the Memoranda. She had taken the shares and paid HK$120,000 too. This ground is made out of a misunderstanding of the meaning of non est factum. I dismiss it.

44.The applicant submitted in the next ground that the tribunal should have heard the application to strike out before hearing the full case and entering the award. The applicant said she was waiting for the result of the striking out before filing a full defence or counterclaim as the success of the striking out application would obviate the need for a defence.

45.This ground is also devoid of merit as the applicant did not appear at the call-over hearing to move her application to strike out. If the adjudicator was right in giving the award in the absence of the applicant, and I have already held that he was right, then the adjudicator was likewise correct in not dealing with the application to strike out before giving the award to the claimant.

46.In any case, this is not a ground to say that the adjudicator was wrong in law in imposing a payment condition for setting aside the award.

47.The next ground complaints against the adjudicator’s failure to join the claim with SCTC 261/2015. The adjudicator has already given his reasons in §§ 25 and 26 of his decision as quoted above for not jointing the two claims. I cannot see any error of law in the reasoning. Even though there may be common questions of law and fact as asserted by the applicant, it was for the applicant to move the application for joinder. But she did not do so before the award was made. I repeat what I have said for the last ground on the applicant’s absence at the call-over hearing.

48.The applicant’s next ground relies on clause 4(1)(a)(iv) or (b)(v) of the Memorandum of Understanding between the claimant and Mr ffitzRoy dated 29 August 2013 which provided that failure to pay will result in the reverting of an amount of shares pro-rated to the amount of outstanding payment to the claimant at no costs to the claimant.

49.This is a relief that the claimant could have elected for upon non-payment. It would not, however, have prevented the claimant from choosing the alternative of suing for the balance of payment under clause 2 of memorandum dated 29 August 2013 and made between the claimant and the applicant. In any event, it is at best a ground of defence. The applicant could have made use of it if she had satisfied the condition for setting aside the award. I see no merit in her complaint. It is not a ground to say that the adjudicator was wrong in law in imposing a payment condition for setting aside the award.

50.The next ground complains that the tribunal did not allow the other director of the Company to act as the McKenzie friend of the applicant on the ground that the other director had drafted the Memoranda with the claimant which were accepted by the applicant on trust and the applicant was physically weak at the hearing.

51.I find that the applicant has expressed herself adequately on paper in her applications. She has been able to represent herself without any problem. The adjudicator also adjourned the hearing of her application to set aside the award on 11 May 2015 to 1 June 2015 because of her ill health. I see no merit in this ground and I dismiss it.

52.The applicant complained in her last ground that she had been denied the right to defend herself. She also submitted that the adjudicator had erred in law in holding that her defence is suspicious. She also said that she had a substantial defence which included the breaches of the Memoranda by the claimant and the walking out of the claimant from the Company. She listed a number of alleged breaches of the Memoranda by the claimant under this ground.

53.I do not think the adjudicator had committed any error of law in coming to the view that the applicant’s defence was suspicious. The adjudicator’s analyses demonstrated that the finding was based on good grounds. In the light of such finding, the adjudicator was entitled to impose a payment condition for setting aside the award.

54.The applicant was not denied of her right to defend the case. She could have enjoyed the right by satisfying the payment condition and setting aside the award. If she should have done so, she could also have raised the alleged breaches of the Memoranda by the claimant to defend the claim. If she has lost the right to defend the claim because she did not satisfy the payment condition, then it is not a deprivation by the adjudicator of her right to defend the claim. This ground therefore has no merit either and I dismiss it.

55.I have dismissed all the grounds of appeal in the application relating to the first order. I formally dismiss this application for leave to appeal.

Application against the second order

56.I now deal with the application in relation to the second order. The applicant complained that the adjudicator did not allow her to file her counterclaim and then transfer it to the CFI. She said the counterclaim was for an amount in excess of HK$1 million and was outside the jurisdiction of the tribunal.

57.I do not think this ground has any merit. Since an award has already been made on the claim, the tribunal is functus officio or has discharged its duty in relation to the claim. It has no jurisdiction to allow a counterclaim to be filed. The jurisdiction would only revive upon the setting aside of the award. Hence, the second order was correctly made. I therefore dismiss this application for leave to appeal as well.