TUNG PUI LING LILY v. MIDLAND INSURANCE CO LTD

HCA 2102/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2102 OF 2006

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REASONS   FOR   DECISION

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Introduction

1.  This “Reasons for Decision” concerns the defendant’s application for:-

(a)	the striking out of the statement of claim and dismissal of the action;
(b)	the plaintiff’s election to sue either Mr Chung (see para. 6 below) or the defendant (this was treated as part of the striking out application);
(c)	alternatively, the consolidation of the action with HCA 7/2006;
(d)	the provision of security for costs by the plaintiff;
(e)	vacating the registration of the writ against the suit property (defined in para. 7 below).

2.  At the beginning of the hearing on 18 April 2007, the defendant sought leave to amend the summons (the most important amendments concerned the striking out application).  Leave to amend was given with no objection from the plaintiff.  For convenience, the amended summons will be referred to below simply as “the summons” or “the application”.

3.  The defendant indicated that it would only pursue the parts of the application set out below.

4.  At the end of the hearing, I made the following orders:-

(1)	para. 6, statement of claim be struck out with leave to the plaintiff to amend the statement of claim within 14 days of the order;
(2)	subject to (1) above, the striking out application be dismissed;
(3)	the consolidation application be dismissed without prejudice to the defendant’s right to take out a fresh application after the amended statement of claim has been filed and served;
(4)	the security for costs application be dismissed;
(5)	the vacating of registration application be dismissed.

5.  I indicated the reasons for the orders would be handed down later.  They are as follows.

The Action

6.  The plaintiff commenced this action in September 2006.  She claims that her lover was the plaintiff’s director, one Mr Chung (“Chung”).  In about July 1999, by a verbal agreement reached between her and Chung, she agreed to lend $1.33 million to the defendant.

7.  Pursuant to that loan agreement, she paid $380,000 to a solicitors firm and $950,000 to the mortgagee of a property in Taikoo Shing owned by the defendant (“the suit property”) as part payment of the mortgage.

8.  Apart from claiming for the repayment of the alleged loan, at para. 6, statement of claim the plaintiff avers:-

“

… by reason of [the plaintiff’s payment of $950,000 as part payment of the mortgage], the Defendant therefore holds the Property as trustee on trust for the Plaintiff and itself to the extent that the Plaintiff is beneficially entitled to a share of the interest of the Property in the ratio of HK$950,000.00 … ”.

9.  The claim is denied by the defendant.

The Striking Out Application

10.  As stated above, the summons was amended at the beginning of the hearing on 18 April 2007.  There is no need to go into the details suffice it to say most (if not all) of the grounds originally relied on in support have been abandoned and replaced by new ones.

11.  The defendant’s primary argument was that the statement of claim should be struck out because of inexcusable or inordinate pre-writ delay.  This argument was premised on the following facts.

12.  As stated above, this action is based on an alleged loan agreement made in about July 1999.  A cheque drawn by Chung (in about April 2000) in purported repayment was dishonoured when presented by the plaintiff in December 2005.  By then, Chung was in a comatic state (since October 2005).

13.  The defendant argued that the delay in the commencement of this action has prejudiced the defendant because it cannot obtain assistance from Chung to defend the action ever since Chung’s coma.

14.  The primary argument can be disposed of briefly.  The learned authors of Hong Kong Civil Procedure 2007, Vol. 1, said:-

“	Time which has elapsed before the issue of the writ within the limitation period cannot of itself come within these words [that is, inordinate delay].  Only delay after the issue of the writ is relevant … ” (para. 25/L/5).

Similar observations were made in Formative Way Co. Ltd. and Another v. Lam Soon Warehouse Co. Ltd., HCA 5312/1991 (22 October 2001), para. 19, citing Birkett v. James [1978] AC 297, 322F-H in support.

15.  I accept the relevant legal principle to be that set out in para. 14 above.  There is therefore no substance in the plaintiff’s primary argument.

16.  The defendant’s alternative argument was that only para. 6, statement of claim should be struck out.  It was argued that a mere contractual claim (that is, a claim based on the alleged loan agreement) can only substantiate a personal claim against the defendant for a monetary judgment.

17.  On the other hand, the plaintiff contended that, where a creditor has at the mortgagor’s request paid the mortgagee in respect of the mortgage, there is a legal presumption the creditor is not regarded as a mere unsecured creditor; he is treated as having succeeded to the mortgage to the extent of the payment.  Reliance was placed on the following:-

(a)	Goff & Jones: The Law of Restitution (2007) 7th Ed., para. 3-047;
(b)	Paul v. Speirway Ltd. (in Liquidation) [1976] 1 Ch 220, in particular, pp. 226E-H, 229D-232D;
(c)	Ghana Commercial Bank v. Chandiram [1960] AC 732, 745 (cited in Speirway Ltd., p. 229).

18.  If para. 6, statement of claim had contained a proper plea along the lines contended for by the plaintiff during the hearing, the matter could well have been triable and hence not suitable for a striking out application.  A “proper” plea here means adequate factual matters being particularised in support of any plea about the intention to subrogate.

19.  But the present averment is, to say the least, embarrassing because, had it not been for the plaintiff’s contention advanced during the hearing, para. 6, statement of claim fails to:-

(1)	comply with RHC Ord. 18 r. 12(1)(b) to set out the plaintiff’s alleged intention to subrogate, it having been accepted whether there was subrogation was ultimately a question of the relevant parties’ intention (the intention of the plaintiff and Chung in the present context);
(2)	aver the plaintiff’s subrogation arising from her payment to the mortgagee.  Para. 6, statement of claim merely alleges the defendant is a trustee holding the suit property “on trust for the Plaintiff and itself”.  It is hard to understand how the defendant, being the registered owner of the suit property, can at the same time be a trustee holding for itself (and another person).

20.  In coming to this conclusion, I have already taken into account the defendant’s submission that the creditor’s interest in a property over which there has been subrogation is akin to (or in the nature of) a trust: Birks: Unjust Enrichment (2005) 2^nd Ed., pp. 298-9 and Birks: Laundering and Tracing (1995), pp. 316-7.

21.  By virtue of the above matters, the most appropriate order is to strike out para. 6, statement of claim with leave to the plaintiff to amend within 14 days of the order (such time period was sought by the plaintiff without objection from the defendant).

The Vacating Lis Pendens Application

22.  Having made the above order, two options were open as regards the defendant’s application to vacate the registration of the writ:-

(a)	adjourn the application sine die with liberty to restore;
(b)	dismiss the application without prejudice to the defendant’s right to take out a fresh application after the amended statement of claim has been filed and served.

23.  Having heard the parties, I consider the option set out in para. 22(b) to be more appropriate.  The precise amendment to para. 6, statement of claim is unknown.  Consequently, it is unknown if the defendant will still seek the vacation of the registration later.  But irrespective of the subsequent decision on the defendant’s part, this application was prematurely taken out.

Other Matters

24.  The other applications were all abandoned.  They should therefore be dismissed.

Costs Order

25.  The following costs orders were made after hearing the parties:-

(1)	two-thirds of the costs of the defendant’s application prior to 18 April 2007 be paid by the defendant to the plaintiff in any event;
(2)	subject to (1) above and (3) below, there be no order as to the costs of the hearing on 18 April 2007;
(3)	half of the plaintiff’s counsel fee be paid by the defendant to the plaintiff in any event;
(4)	costs incurred and thrown away by the plaintiff’s amendment and costs of any consequential amendment be paid by the plaintiff to the defendant in any event.

26.  Most of the defendant’s application has been dismissed.  For this reason, the plaintiff should have two-thirds of the costs of the application incurred prior to the hearing.

27.  However, the costs of the hearing on 18 April 2007 should be given different treatment.  This is because a substantial part of the hearing on 18 April 2007 was in fact spent on the defendant’s application to strike out para. 6, statement of claim.  The defendant has succeeded in having that part of the pleading struck out, but for a reason not put at the forefront.

28.  The most appropriate costs order (leaving aside counsel fee) is to make no order as regards the costs of the hearing on 18 April 2007.

29.  The plaintiff contended that counsel fee incurred for attending the hearing is different from solicitors’ costs: counsel charged a brief fee instead of time-cost.  Because the defendant’s new arguments in support of the application were only put forth the day before the hearing, it would be unfair to the plaintiff if she could not recover any part of her counsel fee at all.

30.  I agree.  The original bases of the defendant’s application were unmeritorious.  Plaintiff’s counsel has also been briefed to deal with those matters (before they were abandoned by the defendant).  Accordingly, half of the plaintiff’s counsel fee should be paid by the defendant.

31.  The costs order relating to the plaintiff’s amendment was the “usual terms as to costs” made on such occasions: Hong Kong Civil Procedure 2007, Vol. 1, para. 20/8/51, The Supreme Court Practice 1999, Vol. 1, para. 20/8/52 and Ord. 62 r. 3(3).