TSOI HAK KONG HERBERT v. KOK WAI CHUN AND ANOTHER

HCA 4/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 4 OF 2006

----------------------

----------------------

-------------------------------------------------------

JUDGMENT ON BASIS OF TAXATION

-------------------------------------------------------

Introduction

1.  In a judgment handed down on 6 May 2009, I found in the plaintiff’s favour against the defendants.  In para. 36 and 37 thereof, I said this about costs:-

“… There will … be a costs order that the costs of this action … be paid by the defendants to the plaintiff to be taxed if not agreed. …

… The plaintiff indicates there may be dispute as to the basis of the taxation between him and the defendants.  Any such dispute will have to be resolved after the parties have submitted their written submission on basis of taxation.  Whether a hearing for such purpose is necessary will have to be decided after I have sight of the submissions”.

Having perused the parties’ subsequent written submissions (and further written submissions), I do not consider it necessary to hear from the parties further.  The following is my decision on the issue (and the reasons for it).

2.  The plaintiff’s case is he should be awarded indemnity costs whereas the defendants’ case is there is no justification for such costs.  They contend costs should be taxed on party-and-party basis.

3.  The above dispute relates to the new RHC Ord. 22 (which came into effect on 2 April 2009) and the court’s general discretion as regards litigation costs.

4.  As will be set out in more detail below, the factual context in this action concerns offers (including a “sanctioned offer” (see below for details)) made by the plaintiff to settle this action.  Further, the plaintiff’s sanctioned offer was made less than 28 days before the trial herein commenced. 

5.  Several types of sanctioned offer are expressly referred to in the new Ord. 22; for example, an offer which is made not less than 28 days before the commencement of the trial, or an offer which is made by a defendant.  Sanctioned payment can also be made under the new rule.

6.  Because of the above factual context, the discussion relating to the new Ord. 22 in this judgment is intended to apply to the sanctioned offer referred to in para. 4 above, and not other types of sanctioned offer (or sanctioned payment).  References to the provisions relating to these will be made only where it is necessary for ascertaining the true meaning of the provisions relating to the sanctioned offer referred to in para. 4 above.

7.  Further, for convenience, the type of sanctioned offer referred to in para. 4 above is called a “plaintiff’s offer” below.

Legal Principles

8.  The plaintiff’s argument is based on two matters:-

(a) a plaintiff’s offer has been made but refused by the defendants;

(b)    in any event, the defence put forth was such as should warrant indemnity costs to be awarded.

Sanctioned Offer

9.  A sanctioned offer is one made pursuant to the new Ord. 22, Rules of the High Court (Cap. 4A).  It is defined in Ord. 22 r. 1(1) as:-

“… an offer made (otherwise than by way of a payment into court) in accordance with [Ord. 22]”.

10.  A plaintiff’s offer is expressly referred to in Ord. 22 rr. 5(8), 7(2) and 16(2)(a):-

(1) Ord. 22 r. 5(8) deals with the form and content of a plaintiff’s offer:-

“[A plaintiff’s offer] must provide that the offeree may only accept it if-

(a) the parties agree on the liability for costs; or

(b) the Court grants leave to accept it”;

(2) Ord. 22 r. 7(2) deals with the withdrawal or diminution of a plaintiff’s offer:-

“[A plaintiff’s offer] may be withdrawn or diminished if the Court grants leave to withdraw or diminish it”;

(3) Ord. 22 r. 16(2)(a) deals with the defendant’s acceptance of a plaintiff’s offer:-

“If [a plaintiff's offer] … is made ... then the defendant may-

(i)  if the parties agree on the liability for costs, accept the offer without the leave of the Court; and

(ii) if the parties do not agree on the liability for costs, only accept the offer with the leave of the Court”.

11.  Further to those provisions, Ord. 22 r. 5(6) permits a sanctioned offer (including a plaintiff’s offer) to be made at any time after the commencement of proceedings.

12.  There are potential costs and interest consequences where a sanctioned offer has been made but not accepted.  Ord. 22 r. 24(1) provides:-

“This rule applies where-

(a) a defendant is held liable for more than the proposals contained in a plaintiff's sanctioned offer; or

(b) the judgment against a defendant is more advantageous to the plaintiff than the proposals contained in a plaintiff's sanctioned offer” (emphasis supplied).

Ord. 22 r. 24(4) then provides:-

“Where this rule applies, the Court shall make the orders referred to in paragraphs (2) and (3) unless it considers it unjust to do so” (emphasis supplied).

Ord. 22 r. 24(2) is concerned with the rate of interest which can be ordered against an offeree whereas Ord. 22 r. 24(3) is concerned with awarding indemnity costs (and the rate of interest thereon).

13.  The rate of interest which can be ordered against an offeree pursuant to Ord. 22 r. 24(2) is:-

“a rate not exceeding 10% above judgment rate”

on the whole or part of any sum of money (excluding interest) awarded to the plaintiff.  The period of such interest is:-

“some or all of the period after the latest date on which the defendant could have accepted the offer without requiring the leave of the Court” (emphasis supplied).

14.  In relation to the indemnity costs which can be awarded pursuant to Ord. 22 r. 24(3), the period for such an award commences:-

“after the latest date on which the defendant could have accepted the offer without requiring the leave of the Court” (emphasis supplied) (Ord. 22 r. 24(3)(a)).

Similar to Ord. 22 r. 24(2), the rate of interest which can be ordered on those costs is a rate not exceeding 10% above judgment rate: Ord. 22 r. 24(3)(b).

15.  To understand why difficulties arise in this action, it is necessary to set out the salient facts.

Relevant Facts

16.  The following are undisputed:-

(a) the plaintiff’s sanctioned offer (“the subject offer”) was made in writing;

(b)    the form of the subject offer complies with Ord. 22 rr. 5(3) and (8);

(c) the subject offer was made less than 28 days before the commencement of the trial (it was made on 2 April 2009, about 20 days before the trial commenced (on 22 April 2009));

(d)    leaving aside the details such as the time of payment, costs and interest, it offered to settle the plaintiff’s claim for a sum of $850,000.

As stated above, the new Ord. 22 came into effect on 2 April 2009; so the earliest date on which the subject offer could be made was that date.

17.  Because of the above undisputed matters, the subject offer was a sanctioned offer within the meaning given to it by Ord. 22 (and a plaintiff’s offer as defined above).

18.  Further, the judgment entered in the plaintiff’s favour against the defendant was for $1,287,500 (with interest and costs of the action).  Hence, this is a case which can fall within either limb of Ord. 22 r. 24(1) (see para. 12 above).

19.  For the reasons given above, subject to the discussion below regarding the applicability of Ord. 22 rr. 24(2) and (3), it appears that the subject offer is one which falls within Ord. 22 rr. 24(1) and (4).

How Ord. 22 rr. 24(2) and (3) Should Apply to a Plaintiff’s Offer

20.  Where the parties reach agreement as regards a plaintiff’s offer (including an agreement on the liability for costs), no difficulty should arise.  The defendant can accept the offer without the leave of the court (Ord. 22 r. 16(2)(a)(i)) and the proceeding is stayed (Ord. 22 r. 22(1) to (3), for example).

21.  Where, however, a plaintiff’s offer is not accepted at all (because the parties do not agree on the liability for costs, for example), it is not immediately apparent how Ord. 22 rr. 24(2) and (3) should be applied.  The present case is one where the subject offer was not accepted by the defendants.  Naturally, the parties did not agree on the liability for costs either.

22.  The difficulties with regard to how Ord. 22 rr. 24(2) and (3) are to apply in such situation have not been addressed by the parties in their original written submissions (both dated 7 May 2009).  As a result, a letter was sent to them on 25 May 2009 (“the 25 May letter”) inviting their assistance about that aspect:-

“(a)   whether the provisions of Ord. 22 rr. 24(2) and (3) are applicable to [a plaintiff’s offer] (i.e. Ord. 22 r. 16(2)(a));

(b) related to sub-paragraph (a) above, the true meaning of “the latest date on which the defendant could have accepted the offer without the leave of the Court” in Ord.22 rr. 24(2) and (3);

(c) whether it is argued that the phrase referred to in sub-paragraph (b) above does or does not include the possibility of the offeror and offeree agreeing on the liability for costs (i.e. Ord. 22 r. 16(2)(i)), the relevance (if any) of:

(1) Ord. 22 rr. 24(1) and (4);

(2) the purpose of the specific reference to a sanctioned offer made less than 28 days before the commencement of the trial in Ord. 22 rr. 5(8), 7(2) and 16(2)(a);

(3) the distinction made between an offer expressed to be “without prejudice save to costs” and a sanctioned offer in Ord. 62 r. 5(1)(d)

to that argument;

(d) any other matter(s) relevant to the Court’s jurisdiction related to a sanctioned offer referred to in sub-paragraph (a) above”.

23.  In short, the defendants argue that Ord. 22 rr. 24(2) and (3) are inapplicable to a plaintiff’s offer.  Their stance in this regard is summed up in the following passages in their further written submissions:-

“[Those provisions] are only applicable to [a plaintiff’s offer] if the parties agree on the liability for costs” (para. 2, 9, 11, 16 and 27 thereof).

24.  I disagree with the defendants.

25.  First, where the parties have reached agreement on the liability for costs in respect of a plaintiff’s offer, it is difficult to see why either of them should still need an order to be made pursuant to Ord. 22 r. 24(2) or (3).

26.  Secondly, in such a case, it is highly unlikely the proceeding will continue.  Consequently, it is highly unlikely the defendant will be held liable (let alone (i) being held for more than the proposals in the offer (which falls within Ord. 22 r. 24(1)(a), or (ii) a judgment being pronounced which is more advantageous to the plaintiff than those proposals (which falls within Ord. 22 r. 24(1)(b)).

27.  Thirdly, if Ord. 22 rr. 24(2) and (3) were inapplicable, in effect the whole statutory regime relating to a plaintiff’s offer will have no consequence pursuant to the provisions of the new Ord. 22 (although there may still be costs consequences under the regime extrinsic of that rule).  This cannot be the legislative intention when:-

(1) express reference has repeatedly been made in the new rules to a plaintiff’s offer (see para. 10 above);

(2) Ord. 62 r. 5(1)(d) appears to maintain a distinction between an offer expressed to be “without prejudice save to costs” and a sanctioned offer when the costs issue is considered by the court;

(3) Ord. 22 rr. 24(1) and (4) do not appear to distinguish a plaintiff’s offer from other types of sanctioned offer.

28.  Further to para. 27 above, pursuant to s. 19, Interpretation and General Clauses Ordinance (Cap. 1):-

“An Ordinance shall be deemed to be remedial and shall receive such fair, large and liberal construction and interpretation as will best ensure the attainment of the object of the Ordinance according to its true intent, meaning and spirit”.

S. 3, Cap. 1 defines an Ordinance as including any such subsidiary legislation made under any such Ordinance.  There is also a presumption at common law that a piece of legislation is not to be construed in a manner which renders it ineffective.

29.  The defendants now argue that the phrase:-

“the latest date on which the defendant could have accepted the offer without the leave of the Court”

in Or. 22 rr. 24(2) and (3) means that where the parties never reach agreement on the liability for costs in relation to a plaintiff’s offer, those words mean that the only way in which the offer can be accepted is to apply for the court’s leave to do so.  In other words, in such a case, effectively the offer cannot be accepted without the court’s leave.

30.  But this argument ignores the use of the language actually used in Ord. 22 rr. 24(2) and (3):-

“the defendant could have accepted the offer without the leave of the Court” (emphasis supplied).

The legislation chose to use words which indicate a supposition or hypothesis; they are not concerned with whether the defendant in fact accepts the offer without the court’s leave; in other words, the language of the legislation shows that it suffices as long as notionally the defendant could have done so at some stage.

31.  Understood in that light, Ord. 22 rr. 24(2) and (3) should apply to a plaintiff’s offer in the manner set out below even if the parties in fact never agree on the liability for costs.

32.  The defendants refer to Civil Justice Reform: Final Report of the Chief Justice’s Working Party on Civil Justice Reform, para. 311 (and other similar passages).  The relevant parts are quoted below:-

“… [sanctioned offers] allowing less than 28 days before trial for [acceptance of the offer by the offeree] would not qualify [as valid offers].  In the Working Party’s view, this requirement would be of particular importance in relation to sanctioned offers made by the plaintiffs.  It would be undesirable to enable a plaintiff to place a defendant under the significant threat of additional interest at potentially punitive rates at the very door of the court … as a means of forcing what may be an unfair settlement” (emphasis supplied).

Based on the above passage, the defendants ask me not to consider the subject offer.

33.  There are two difficulties with the above contention:-

(a) to be able to rely on such materials, the defendants need to show the exceptions set out in Pepper v. Hart [1993] AC 593 (adopted in CIR v. Agrila Ltd. and Others (2001) 4 HKCFAR 83) apply here.  But it is clear the new Ord. 22 regime applies to a plaintiff’s offer: Ord. 22 rr. 5(8), 7(2), 16(2)(a) and 24 (see para. 10 above).  What is unclear is how Ord. 22 rr. 24(2) and (3) should apply to such an offer.  The Final Report does not discuss that at all;

(b)    related to sub-para. (a) above, when the legislation expressly confers a power on the court, it is the court’s duty to at least consider how to exercise that power.  It is wrong in principle for the court not to do so because a pre-legislation report opines that it should not.

The Meaning of “Latest Date” in Ord. 22 rr. 24(2) and (3)

34.  The 25 May letter also asked:-

“(1)(i)   what was the period (with dates) referred to in Ord.22 r.24(2);

(ii)  what was the date referred to in Ord.22 r.24(3) in the factual context of this action”.

35.  A plaintiff’s offer can be accepted without the court’s leave up to the time when the court pronounces its holding or judgment (but not beyond that time).  This conclusion flows from the following:-

(a) the power conferred by Ord. 22 r. 24(4) becomes exercisable when there is a holding or judgment which falls within the terms of Ord. 22 r. 24(1)(a) and/or (b) (see para. 12 above);

(b)    to prevent Ord. 22 from becoming operative, not only must a defendant accept a plaintiff’s offer (pursuant to Ord. 22 r. 16(2)(a)(i) or (ii)), he must do so before the holding or judgment is pronounced.  Once that event occurs, it will be too late for him to do so;

(c) in other words, the period during which the defendant could have accepted the offer without the court’s leave cannot extend beyond the time when the holding or judgment is pronounced.

(cp. David Philip Hawley v. Luminan Leisure PLC and Others [2006] EWCA Civ 30)

36.  A simple example will provide a clear illustration.  The plaintiff makes a sanctioned offer pursuant to Ord. 22 r. 16(2)(a) on Monday.  The trial commences on Tuesday and finishes on Wednesday.  Judgment (which falls within the terms of, say, Ord. 22 r. 24(1)(b)) is pronounced on Thursday.  In such a case, the “latest date” falls on Wednesday.

37.  In the factual context of this action, the “latest date” on which the defendants could have accepted the plaintiff’s offer without the court’s leave (referred to in Ord. 22 rr. 24(2) and (3)) was 5 May 2009.

38.  By reason of the matters aforesaid, I do not agree with the plaintiff’s argument that (1) the “latest date” is meaningless, or (2) the relevant period should commence from 2 April 2009.

39.  In relation to para. 38(2) above, it should be noted that, for a sanctioned offer which is made not less than 28 days before the commencement of the trial (pursuant to Ord. 22 rr. 5(7)) (which is not accepted within that period), the court’s jurisdiction under Ord. 22 rr. 24(2) and (3) only covers the period after expiration of the 28-day period (the combined effect of Ord. 22 rr. 15(1), 15(2)(a), 16(1), 16(2)(a) and 24(2) and (3)).  To accept the argument set out in para. 38(2) above will effectively mean that a plaintiff may be given more favourable treatment under Ord. 22 if he makes a sanctioned offer later rather than earlier.  This cannot be the legislative intent.

40.  Although the parties have not addressed the point, I have also considered whether, in the case of a plaintiff’s offer, the phrase “latest date” in Ord. 22 rr. 24(2) and (3) can mean the day immediately following the expiration of the 28-day period and I conclude that it cannot.  The reasons are as follows.

41.  For a sanctioned offer which is made not less than 28 days before the commencement of the trial, the offeree can accept the offer without leave within the 28-day period: Ord. 22 rr. 15(1) and 16(1).  The 28-day period is material because, after the expiration of that period, the offeree will need to obtain the parties’ agreement on the liability for costs or the court’s leave to do so: Ord. 22 rr. 15(2)(b) and 16(2)(b).  However, an offeree of a sanctioned offer which is made less than that period (hence, a plaintiff’s offer is included) is not given the “optional” 28-day period by Ord. 22 r. 15(2)(a) or 16(2)(a).

42.  Finally, s. 49(1)(a), High Court Ordinance (Cap. 4) provides:-

“Judgment debts shall carry simple interest… at such rate as the Court of First Instance may order”.

Section 49(1)(b), Cap. 4 in effect provides that in the absence of such order, judgment debts shall carry interest at what is commonly called “judgment rate” or “statutory rate.”

43.  In Hong Kong, it is common practice for judgment debts to carry interest at judgment rate.  The commentaries in Hong Kong Civil Procedure 2009 appear to confirm the practice: see Vol. 1, para. 42/1/11 thereof.

44.  In KR v Bryn Alyn Community (Holdings) Ltd. (In Liquidation)(Permission to Amend) [2003] EWCA Civ 383; [2003] PIQR P30, the parties agreed to vary the first instance judgment so that the “enhanced” interest (awarded pursuant to provisions similar to our Ord. 22) covered the period from date of sanctioned offer to date of judgment (instead of from date of judgment to date of payment) (see para. 6, CA judgment).

45.  I have considered the matters set out in para. 42 to 44 above before exercising my discretion in the manner set out in para. 53 below.

Exercising the Discretion

46.  It is undisputed Ord. 22 rr. 24(2) and (3) confer a discretionary power on the court.

47.  I also cannot agree with the plaintiff’s contention that Ord. 22 rr. 24(2) and (3) provide for:-

“minimum ‘standard’ orders” (para. 21, 31, 37, 47 and 55, further written submissions).

The contention runs contrary to the express language used by those provisions, as well as the provisions of Ord. 22 r. 24(5):-

“In considering whether it would be unjust to make the orders referred to in Ord. 22 rr. 24(2) and (3), the Court shall take into account all the circumstances of the case … ”.

48.  The contention is also inconsistent with the conclusion reached in judicial decisions in the UK determining the nature of similar statutory powers conferred by the Civil Procedure Rules (for example, Factortame v. Secretary of State [2002] EWCA Civ 22; [2002] 1 WLR 2438; Read v. Edmed [2004] EWHC 3274).

49.  Having said that, in exercising the discretion, it is important to bear in mind the legislative intention of the new Ord. 22 regime (which is part of the new regime under the civil justice reform).  It is obvious the new rules encourage the parties to settle their litigation sooner rather than later: see, for example, Victor Kermit II v. MGN Ltd. [2002] EWCA Cir 66, para. 8.

50.  In light of the conclusion reached above regarding the manner in which Ord. 22 rr. 16(2) and (3) should apply to a plaintiff’s offer, it will mean that in an extreme case, a plaintiff’s offer can be made the day before the holding or judgment is pronounced.

51.  In such an extreme case (as well as in other cases), however, the court’s discretion should be exercised in a way which reflects the above legislative intention.  Indeed, Ord. 22 r. 24(4) requires the court to consider if making an order pursuant to Ord. 22 rr. 24(2) and/or (3) will cause injustice.  Guidance as to what may cause injustice is given to the court by Ord. 22 r. 16(5):-

“In considering whether it would be unjust to make the orders referred to in paragraphs (2) and (3), the Court shall take into account all the circumstances of the case including-

(a) the terms of any sanctioned offer;

(b) the stage in the proceedings at which any sanctioned offer was made;

(c) the information available to the parties at the time when the sanctioned offer was made; and

(d) the conduct of the parties with regard to the giving or refusing to give information for the purposes of enabling the offer to be made or evaluated”.

52.  I have considered the following matters when exercising that discretion:-

(1) the subject offer was preceded by two earlier “without prejudice” offers;

(2) the first offer was made on 14 March 2007 (about 2 years before trial commenced).  Its terms were even more advantageous to the defendants than the subject offer: in effect, they could pay $850,000 inclusive of interest and costs in full and final settlement of this action;

(3) the second offer was made on 23 March 2009 (about 3 weeks before trial commenced).  In brief, it offered to settle this action for $850,000 with costs;

(4) the subject offer was made as early as the new Ord. 22 permitted the plaintiff to do so (it was made on the day when the new Ord. 22 came into effect);

(5) about 20 days were available to the defendants for considering the subject offer before the trial commenced.  This period is not substantially shorter than the 28-day period provided for in Ord. 22 rr. 5(7) and (8);

(6) the defendants’ only contention of unfairness is that the subject offer was made at a time too close to the trial.  This contention has to be considered in the light of sub-para. (1) to (5) above.

53.  In brief, my discretion should be exercised as follows:-

(a) interest on $1,287,500 is awarded to the plaintiff at the rate of 3% above judgment rate (instead of the 10% sought);

(b)    costs of this action as between the plaintiff and the defendants are to be taxed if not agreed on an indemnity basis with interest thereon at the rate of 3% above judgment rate (instead of the 10% sought).

In accordance with the conclusion reached above, the “enhanced” costs and interest which are awarded under this heading can only apply to those commencing on 6 May 2009.  The higher rate of interest is applicable until payment (subject to the taxation master’s discretionary power under Ord. 62 in relation to the interest on the indemnity costs (if any)).

(b) No Defence

54.  The essence of the defence to the plaintiff’s case has been summarized in the judgment dated 6 May 2009 (especially at para. 1 to 7, 11 and 31 thereof).

55.  I agree with the plaintiff that the defence put forth has no merit at all, whether judged from the factual or legal perspective.  I have also taken into consideration the matters set out in para. 52(1) to (6) above.

56.  Further to para. 53(b) above, I find this to be an appropriate case for indemnity costs to be awarded based on general principles: Hong Kong Civil Procedure 2009, para. 62/App/12.  The defence is scandalous or vexatious.

57.  In coming to this conclusion, I have taken into account a plaintiff’s offer has been made as early as possible: Ord. 62 r. 5(1)(d).

Other Matters

58.  It can be seen from the conclusion reached at para. 35 and 37 above, and the orders actually made pursuant to Ord. 22 rr. 24(2) and (3) (at para. 53(a) and (b) above), that the practical benefit to the offeror of a plaintiff’s offer is minimal.  That may be a reason why the UK Civil Procedure Rules have earlier decided to remove provisions similar to those concerning a plaintiff’s offer.

59.  Voluminous photocopies of:-

(1) Blackstone’s Civil Practice 2009 (25 pages);

(2) Civil Procedure 2009, Vol. 1 (24 pages);

(3) Civil Justice Reform: Final Report (25 pages (including 7 pages of table of contents))

have been supplied with the defendants’ further written submissions.

60.  Save the passages referred to in para. 32 above, no reference has been made to those documents; nor is there indication in the further written submissions regarding how they can assist the court.

61.  This kind of practice is to be deplored:-

(a) it wastes natural resources;

(b)    it hinders rather than assists the court’s work; the court should not be left to second-guess the relevance of such documents (if any);

(c) for the same reason given in sub-para. (b) above, it may cause injustice to either or both of the parties.

Conclusion

62.  Accordingly, I will make the orders referred to in para. 53 and 56 above.

HCA 4/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 4 OF 2006

----------------------

----------------------

----------------------

J U D G M E N T

----------------------

Introduction

1.  The plaintiff landlord commenced this action in January 2006 claiming arrears of rent from the former tenants.  The tenant defendants deny the claim and counterclaim for the return of the balance of rental deposit.  The defendants also commenced a third party claim for the third party’s breach of warranty of authority and misrepresentation.

Issues

2.  The main dispute concerns an alleged verbal agreement reached between the defendants and the third party in April 2003 for the reduction of rent from $220,000 to $160,000 per month for two years.

3.  The plaintiff further contends that, even if the court is to find in the defendants’ favour regarding the alleged agreement, as a matter of law, that agreement (which was only reached between the defendants and the third party) cannot have any binding effect as against the plaintiff.

Background

4.  The following background is undisputed.

5.  The suit property is a ground floor shop located at Po Wing Building, Percival Street, Causeway Bay (“the suit property”).

6.  Pursuant to an order dated 19 June 2003, the plaintiff was appointed to be the administration pendente lite of the estate of one Mr Chu Yee (or Yu) Junk (or Tsang) (“Chu”), who passed away on 25 October 1999.

7.  The third party is Chu’s lawfully wedded wife.  Apart from the third party, Chu left behind 9 children.  The natural mother of those children was a Madam Wong.

8.  Since October 1993, the suit property was let to a business known as “Sun Chiu Kee”.  Since February 2000, that business became a partnership of the defendants.  The lease was one to expire by October 2002.  The rent payable per month was $220,000.

Witnesses’ Credibility and Findings of Fact

9.  Because the dispute concerns the existence of an alleged verbal agreement, its resolution necessitates an assessment of the witnesses’ credibility.  Three witnesses testified at trial: the plaintiff, the third party and the second-named defendant (“the defence witness”).

10.  Some of the events since Chu’s death may have an impact on credibility.  They are summarized below.

11.  After Chu passed away, the third party desired to apply for letters of administration.  However, two of Chu’s children made the application in October 2001.  The third party commenced an action against them in May 2002 seeking the court’s order to name her as the administratrix of Chu’s estate instead.  The parties to that litigation agreed in December 2002 to appoint the plaintiff to be the administrator pendente lite.  An order to that effect was granted on 19 June 2003.

12.  Chu and the third party emigrated to Canada in the 1980’s, but they came back to Hong Kong every year.  It is common ground that in April 2003 the third party went to the suit property to visit the defence witness.  But what happened during the visit is in dispute.

13.  According to the third party, the defendants (through the defence witness) told her their business was not good due to the effect of avian influenza.  They asked for a rent reduction to $160,000.  In view of the payment record of the defendants and the market condition, the third party considered the reduction acceptable to her.  She told the defendants words to the effect she was agreeable in principle to the proposed reduction, but because she did not have the power to deal with the matter any more, she told them they should contact the plaintiff to discuss the matter.

14.  On the other hand, the defence witness testified that he was never made aware of the third party’s lack of authority.  In fact, all along he considered her to be able to represent Chu, the owner.  According to his testimony, the third party considered his proposal and subsequently informed him she agreed to so reduce the rent for two years.

15.  The defence submits that the third party’s testimony is unbelievable because of the following reasons:-

(a) the third party admits she considered the defendants’ rent reduction proposal for about a week before giving a reply to them.  If she in fact thought that she had no authority at all, she would not have sought time for consideration;

(b)    the third party explained during cross-examination she needed time to consider if the reduced amount was something which she would be able to shoulder up.  This indicates the third party considered herself to have power;

(c) the third party treated the suit property as hers, for example, she issued rental receipts to the defendants from October 1999 to May 2001, and withdrew money from the joint bank account from time to time from November 1999 to December 2002;

(d)    the third party failed to respond to the plaintiff’s enquiry in August and October 2003 as to (among other things) the particulars of rent for Chu’s properties, including that for the suit property;

(e) the third party made a mistake as regards when she met the plaintiff to discuss the defendants’ proposal to reduce rent;

(f) the letter dated 9 August 2003 from the third party’s then solicitors shows that she was in effect treated as the administratrix of Chu’s estate.

These will be discussed below.

16.  I do not consider para. 15(a) above to be a valid ground for doubting the third party’s credibility.  It is apparent from her testimony she considered the defendants to be good tenants and, for that reason, was prepared to help them as much as she could.  In fact, it is undisputed Chu has had a similar view of the defendants before he passed away.  The fact of the third party having considered the proposal for a while is equally consistent with her testimony that she would try to help the defendants as much as she could, including persuading the plaintiff to accept the proposed rent reduction (which she did: see para. 33, the plaintiff’s witness statement).

17.  As regards para. 15(b) above, I consider that part of her testimony to be more a spontaneous response to the line of questioning advanced at that time.  Little weight should be attached to this.  In reaching this conclusion, I bear in mind it is not either party’s case (especially the defendants’) that the third party agreed to take up personal responsibility for the difference between the original rent ($220,000) and the proposed rent ($160,000).

18.  There is little merit in the argument summarized at para. 15(c) above.  While before May 2002 the third party apparently considered she was in a position to deal with Chu’s properties, by May 2002 (and definitely by December 2002) she must have known that her entitlement to those properties was under challenge.  I note that the date of the last withdrawal (24 December 2002) coincided with the date when the plaintiff was agreed to be appointed as the administrator (see para. 34, the plaintiff’s witness statement).

19.  In this connection, the third party appears to have no hesitation in telling the defendants matters of a personal nature.  The following was stated in the witness statement of the defence witness:-

“[The third party] came back to Hong Kong in or about April 2003. … I learnt from [the third party] at that time that [the suit property] was used by [Chu] and her as a roasted meat shop for many years and [the suit property] was purchased with money through her hardwork with [Chu] … The business of roasted meat stopped as a result of fire occurred at [the suit property] which was due to the negligence of the last son of [Chu] who is a son between [Chu] and a woman … who died in 1967 … ” (para. 15 thereof).

It is conceivable conversations of the kind described above could lead on to topics such as the third party’s predicament with regard to Chu’s estate.  It is worth pointing out the defence witness denied during cross-examination the above information came from the third party; he alleged it came from a decoration contractor or worker.

20.  As regards para. 15(d) above, the defendants also failed to respond to the plaintiff’s enquiry as to whether there was any written agreement for rent reduction to $160,000, and to provide a copy of any such agreement (see the plaintiff’s letter dated 28 August 2004).  I consider the failure by both parties to respond to have little weight.  In this regard, it is pertinent to note:-

(1) as discussed below, the third party’s age appears to be much more advanced than that of the defence witness;

(2) the third party has been residing in Canada.

21.  Para. 15(e) above has to be looked at with the following in mind.  One, in the statement of claim filed in the third party’s probate action (dated 9 May 2002), the third party was described as 70 years old.  If that description is correct, she is now about 77 years of age.  Her appearance when she testified at trial was consistent with the description.  In view of her age, the mistake regarding the time of her meeting with the plaintiff is not surprising.  Two, in any event, the mistake should have no bearing on credibility, though it may need to be taken into account when considering her reliability.

22.  As regards para. 15(f) above, the letter must have been drafted by the third party’s then solicitor.  They must have been aware of the third party’s probate action (they were the solicitors on record therein).  There is no evidence to indicate the language used in the said letter was a result of the third party’s specific instruction.

23.  By reason of the matters set out above, I find the third party to be a truthful and reliable witness in relation to the alleged agreement to reduce rent for 2 years.

24.  I do not find the defence witness to be truthful:-

(a) the alleged agreement to reduce rent is inherently implausible in view of the litigation already pending between the third party and Chu’s two sons;

(b)    he cannot explain why the defendants failed to pay the former rent of $220,000 after the expiration of the alleged 2-year rent-reduction period.  Further, the letter dated 19 May 2005 from the defendants’ solicitors failed to refer to the rent reduction being only for a period of 2 years;

(c) he cannot explain why the defendants did not ask the third party to refund part of the rental deposit which should become repayable if in fact there was a rent reduction agreement;

(d)    his denial that matters of a personal nature were disclosed to him by the third party is incredible in light of what he said about this in his witness statement (see para. 19 above).

When assessing the credibility of the defence witness, I have already taken into account the defendants’ arguments regarding the above points (see below for details).

25.  In relation to para. 24(a) above, the defendants made the following submissions.  The third party must have considered the challenge of Chu’s two sons to her entitlement was a mere piece of nuisance without merits.  (But as the plaintiff points out, it is important that the third party was the party which commenced the action against Chu’s two sons.)  She must also have thought the rent reduction would be to the estate’s benefit because it would help retain a good tenant.  The third party also testified that the plaintiff had not yet been formally appointed by April 2003.  She was still treating the money in the joint account as her own as late as December 2002 (but see the discussion at para. 15(c) and 18 above in relation to the defendants’ last submissions).

26.  In relation to para. 24(b) above, the defendants contend that they continued to pay the reduced rent after the 2-year period because they wanted to take undue advantage of the earlier verbal agreement.  There is however no evidence to support this contention.

27.  In relation to para. 24(c) above, it is undisputed that, when the rent was reduced by Chu in about October 1999 from $237,500 to $220,000, the defendants did not obtain a partial refund of the rental deposit either.  This is a point in the defendants’ favour and less weight is placed on para. 24(c) above when assessing the credibility of the defence witness.

28.  In relation to para. 24(d) above, it could be the result of the defence witness becoming more focused in his recollection of the incidents in April 2003 at the time of trial than when the witness statement was prepared.

29.  I also find the plaintiff to be a truthful and reliable witness.

30.  Taking into account my assessment of the witnesses’ credibility, the following findings of fact are made:-

(1) the third party did not reach any rent-reduction agreement with the defendants;

(2) the third party did not represent to the defendant she was the administratrix of Chu’s estate or was in any way empowered to deal with the suit property;

(3) on the contrary, the third party made clear to the defendants she did not have such power and they should contact the plaintiff to discuss the rent;

(4) since 25 October 2002, the defendants’ tenancy was a monthly tenancy at the monthly rent of $220,000 until its termination on 24 May 2005 (the nature of the tenancy being a monthly tenancy since 25 October 2002 is undisputed).

The Plaintiff’s Claim

31.  There is no basis (whether evidential or legal) to support the defendants’ case that the plaintiff has (whether by himself or through the third party) agreed to reduce the rent payable.

32.  Quantum of loss is undisputed.  The amount of rent in arrears is $2,000,000 ($340,000 + 1,440,000 + 220,000).  The amount of rental deposit to be set off is $712,500.

33.  Accordingly, Judgment is entered against the defendants in the plaintiff’s favour in the sum of $1,287,500 ($2,000,000 – 712,500).

The Third Party Claim

34.  Because I have rejected the testimony of the defence witness, there is no evidence to support the allegations of breach of warranty of authority or misrepresentation.

35.  The third party claim is therefore dismissed.

Costs Order

36.  The parties agree the usual rule that costs should follow the event is applicable.  There will accordingly be a costs order that the costs of this action (including any reserved costs) be paid by the defendants to the plaintiff to be taxed if not agreed.  Further, the costs of the third party claim (including any reserved costs) be paid by the defendants to the third party to be taxed if not agree.

37.  The plaintiff indicates there may be dispute as to the basis of the taxation between him and the defendants.  Any such dispute will have to be resolved after the parties have submitted their written submission on the basis of taxation.  Whether a hearing for such purpose is also necessary will have to be decided after I have sight of the written submissions.

HCA 4/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 4 OF 2006

----------------------

----------------------

-----------------------------------------

REASONS FOR DECISION

---------------------------------------

Introduction

1.  This is the defendants’ application for an order that the third party is to provide further and better particulars of her defence to the third party claim.

2.  This application was dismissed after a hearing.  Below are the reasons for the decision.

Background

3.  The background leading to this application can be summarized as follows.

4.  According to the third party notice, the plaintiff commenced the main action against the defendants as former tenants of a tenancy relating to a shop in Causeway Bay (“the subject shop”).  The tenancy was entered into between them and the late Mr Chu (“the deceased”).  The plaintiff was the administrator of the deceased’s estate.  The third party was the deceased’s lawfully-wedded wife (“the deceased’s wife”).

5.  The main action, according to the third party notice, seeks (among other things) payment of the rent in arrears and/or mesne profits by the defendants.

6.  While denying their liability in the main action, the defendants allege that the deceased’s wife should indemnify them for any sum payable in the main action.

7.  The defendants allege that the deceased’s wife untruthfully represented she was the personal representative of the deceased’s estate and, in that capacity, she untruthfully promised them the rent payable for the subject shop could be reduced.  The defendants say the deceased’s wife has breached her warranty of authority and was guilty of misrepresentation.

Issues in This Application

8.  As the defendants fairly accepted at the hearing of this application, the third party claim can be put on one of the following 2 bases:-

(a)  it be established that the deceased’s wife was the personal representative of the deceased’s estate and, in that capacity, she agreed to a reduction of rent;

(b)  it be established that the deceased’s wife was (and is) not the personal representative (but someone else was) and she made the said promise despite the lack of capacity to do so.

In the former case, the defendants say they would be able to successfully defend the main action and establish their counterclaim (for the return of the rent deposit and the like).  In the latter case, they argue they should be entitled to an indemnity because of breach of warranty of authority and misrepresentation on the part of the deceased’s wife.

9.  The defendants also fairly accepted that, should they fail to establish either of the above bases, the third party claim would fail.

Request No. 1

10.  This request was:-

“State who is/are entitled to a grant of Letters of Administration of the Deceased’s estate in Hong Kong pursuant to [r.] 29(b) of the Non-Contentious Probate Rules Cap. 10A”.

11.  R. 29(b), Cap. 10A states:-

“Where the deceased died domiciled outside Hong Kong, the Registrar may order that a grant do issue … to the person entitled to administer the estate by the law of the place where the deceased died domiciled”.

12.  A person’s entitlement to administration is thus to be determined according to the law of the place where the deceased person was domiciled at his death.  At least for the purpose of this application, it is accepted the deceased died intestate in Toronto, Canada.

13.  It is unknown if Canadian law in this respect is the same as that of Hong Kong.  Assuming, for the sake of discussion that it is, r. 21(1), Cap. 10A provides:-

“Where a person dies wholly intestate, the persons having a beneficial interest in the estate shall be entitled to a grant to administration in the following order of priority, namely … (i) the surviving spouse … ”.

Thus, if Canadian law is the same as Hong Kong law in this regard, the deceased’s wife would appear to have priority for obtaining a grant to administration.

14.  Sufficient particulars of pleading need to be given as regards to matters of fact.  However, request for particulars cannot be made as regards questions of pure law.  This request was directed entirely at a matter of law.

Request No. 2

15.  This asked for:-

“(1)  State the reasons put forward by the Defendants [of] HCAP 7 of 2002 [to oppose] the application by [the deceased’s wife] for grant of Letters of Administration …

(2)  State [the stage to which] HCAP 7 of 2002 has reached …

(3)  State … [whether] the parties in HCAP 7 of 2002 [have reached any agreement or settlement] in respect of the grant of Letters of Administration …

(4)  [State] the date on which the said [agreement or settlement] has been reached and [the terms thereof]”.

16.  This request appears to arise out of the averments in the defence to the third party claim to the effect that the deceased’s wife and her two sons disagreed as to who should be granted letters of administration.  Consequently, the deceased’s wife commenced HCAP 7/2002 to resolve the dispute, naming the two sons as the defendants therein.

17.  The purpose of the above averments is not to rely on the probate action as part of the defence to the third party claim.  Quite on the contrary, it is only to provide a background which leads to the averments that the deceased’s wife never represented to the defendants that she was (and that in fact she was (and is still) not) the person representative.  She further claims she in fact told the defendants she was not the personal representative and had no authority to bind the deceased’s estate.

18.  In view of the gist of the case put forth by the deceased’s wife, the particulars sought by this request are immaterial.

Request No. 3

19.  This asked for:-

“State the reason for the agreement to be made by the [deceased’s wife] and the Deceased’s Sons”.

20.  The “agreement” referred to above concerns the appointment of the plaintiff, a practising solicitor, to act as the administrator pendente lite in this action.

21.  The defendants have been unable to explain why this matter should have any relevance to the case put forth by the deceased’s wife in her defence to the third party claim (see para. 8, 17 and 18 above).

Conclusion

22.  By reason of the above matters, this application was dismissed.

Other Matters

23.  The matters set out below are in addition to those set out above.

24.  During the hearing, the defendants argued that the deceased’s wife had confirmed in her witness statement she had made a promise to the defendants to reduce the rent.  But they accepted that they bear the burden of proving the deceased’s wife was (or is) the personal representative of the deceased’s estate.

25.  Assuming the argument to be valid, the requests for particulars set out in the summons are nothing more than asking the deceased’s wife to assist the defendants to decide which of the two factual premises set out in para. 8(a) and (b) above ought their case be based on when pursuing the third party claim.

26.  This is not a proper reason for ordering a party to provide further and better particulars either.