TANG LAI NGOR v. TSENG ANNE formerly known as TSENG HENG TZU

DCCJ 2061/ 2018

[2019] HKDC 753

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION No. 2061 OF 2018

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DECISION

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Introduction

1.  This court handed down a decision dated 3 April 2019 (“the Decision”) for the disposal of Ms Tang’s application for default judgment and Ms Tseng’s cross application for retrospective leave to file her defence out of time.

2.  In the Decision, this court also made a costs order nisi that Ms Tseng should forthwith pay Ms Tang her costs of the two applications up to 18 December 2018 (two weeks after the filing of the reply affirmation on behalf of Ms Tseng) with certificate for counsel and thereafter each party do bear her own costs.

3.  By summons dated 16 April 2019 (“the Summons”), Ms Tang applies for variation of the costs order nisi to the extent that Ms Tseng should pay her costs incurred after 24 December 2018 including the hearing on 31 January 2019 with certificate for counsel, to be taxed if not agreed on an indemnity basis.

4.  Ms Tseng opposes this application. This court has given directions to the parties to lodge their respective written submissions for paper disposal of the Summons. Ms Tang opted not to lodge any reply submission after the deadline and this court now proceeds to decide on her application.

5.  In this document, this court shall adopt the abbreviations used in the Decision. This court shall also refer to the Decision for the background facts, which will not be repeated here.

Grounds of the Application

6.  Ms Tang principally relies on two without prejudice correspondence exchanged between the parties on 24^th and 28^th December 2018. There were also open letters exchanged. In the supporting affirmation filed on her behalf, criticisms were also made on the conduct of the legal advisers of Ms Tseng. It is further suggested that this court should consider whether the solicitors for Ms Tseng should bear personal costs for a particular affirmation. This suggestion falls outside the ambit of the Summons and will not be entertained.

7.  The secondary ground is premised on the alleged unreasonable conduct of Ms Tseng, which will be elaborated below.

8.  For the first ground, I have read all the letters exhibited to the supporting affirmation and I shall not recite their contents here. I need only refer to the following four letters to which Ms Tsau, counsel for Ms Tang, helpfully invited my attention.

9.  The first one in time is the open letter dated 9 October 2018 issued by Messrs CLY Lawyers (“CLY”), solicitors for Ms Tang, to Messrs Ho & Associates (“Ho”), solicitors for Ms Tseng (“the 9/10 Letter”). It first referred to the Default Judgment Summons taken out on the previous day and CLY stated the position of Ms Tang on the same. Ms Tang had no objection to Ms Tseng’s application for retrospective leave to file and serve the defence out of time if made and to the setting aside of her application provided that Ms Tseng agreed to pay costs of and incidental to her application and the application for time extension to file and serve the defence out of time.

10.  Before Ho replied to the 9/10 Letter, they filed the Retrospective Leave Summons on 10 October 2018. Their reply letter dated 12 October 2018 (“the 12/10 Letter”) was a lengthy one. They alleged that the Default Judgment Summons was an abuse of process and fundamentally misconceived. Their position was, and still is, that Ms Tang could not possibly obtain declaratory relief by way of default judgment in any event. It was stated that out of abundance of caution, they took out the Retrospective Leave Summons. Lastly, it was counter-proposed that Ms Tang should withdraw the Default Judgment Summons with no order as to costs whereas Ms Tseng was prepared to pay Ms Tang the fixed costs of the Retrospective Leave Summons, which was a time summons in nature.

11.  Obviously the parties were unable to reach any agreement and they appeared before the master on 24 October 2018 for the two Summonses. For the purpose of that hearing, Ms Liao, counsel for Ms Tseng, lodged a document known as speaking notes running over 70 pages. It is alarming indeed. The master made the Order for the parties to file their evidence for argument at the adjourned hearing before this court on 31 January 2019.   

12.  After the close of evidence, on 24 December 2018, CLY sent Ho a letter on a without prejudice basis (“the 24/12 Letter”). In the said letter, CLY urged Ho to reconsider their position on costs and asked Ms Tseng to pay Ms Tang her costs of and incidental to the two Summonses with a view to vacating the adjourned hearing on 31 January 2019 by consent.

13.  Ho replied by way of a without prejudice letter dated 28 December 2018 (“the 28/12 Letter”). The said letter referred to CLY’s letter dated 27 December 2018 and I assume it was meant to be the 24/12 Letter. Ho maintained the same position in the 12/10 Letter and they pointed out that Ms Tang should withdraw the Default Judgment Summons with costs to be decided by this court on 31 January 2019 and the Retrospective Leave Summons should be allowed with the fixed costs of HK$800 to be paid by Ms Tseng to Ms Tang. Ho asked for the agreement of CLY to their proposal so that the hearing bundle index could be amended accordingly for the purpose of the adjourned hearing.

14.  By the costs order nisi, this court, among other matters, ordered that Ms Tseng should forthwith pay Ms Tang her costs of both Summonses up to 18 December 2018 with certificate for counsel, to be taxed if not agreed. Ms Tang does not seek to vary this part of the costs order nisi. Nor has Ms Tseng applied for variation of the same. I still maintain the view that Ms Tang was perfectly entitled to take out the Default Judgment Summons despite the fact that the delay was only slight and the defence had been purportedly filed without leave: see Schindler Lifts (Hong Kong) Ltd v Ocean Joy Investments Ltd [2002] 1 HKLRD 279.

15.  I do not accept Ms Liao’s submission that Ms Tang is not entitled to the declaratory relief on a default basis in any event. On the basis that the pleaded matters including the existence of the Trust Agreement are taken to be proven, Ms Tang’s beneficial interest in the Relevant Shares can be confirmed. Needless to say, Ms Tang has a genuine need for the declaratory relief claimed. She does not need to show the need by way of evidence, which is not admissible in applications for default judgment. In my judgment, she is of course entitled to the declaratory relief claimed in the particular circumstances of the present case.

16.  In the premises, I cannot accept the position taken by Ms Tseng in the 12/10 Letter. She should have accepted the proposal of Ms Tang in the 9/10 Letter.  

17.  My view was, and still is, that after the close of evidence, Ms Tang should reconsider her position and come to the conclusion that Ms Tseng may have an arguable defence despite the bare denials in the Defence purportedly filed. I allowed her two weeks to reach this reasonable conclusion in the costs order nisi. 

18.  The 24/12 Letter only came 6 days late. The proposal contained therein was reasonable. In my view, Ms Tseng should have accepted her liability to pay costs of the two Summonses up to the date of the said letter so that the substantive hearing on 31 January 2019 could have been avoided.

19.  Now Ms Tseng has failed to do better than the proposal. The 6-day lateness does not make any practical difference, particularly given the intransigent stance of Ms Tseng maintained throughout. In the end, Ms Tseng has failed to avoid her liability to pay Ms Tang her costs of the two Summonses up to 18 December 2018 and failed to limit her liability to the fixed costs of the Retrospective Leave Summons. She is substantially worse off as a result of the costs order nisi. On this basis, she should be ordered to pay indemnity costs after her rejection of the proposal in the 24/12 Letter: Lung Po Kwan and Anor. v Tang Kam Sheung and Anor., unreported, CACV 164/2010, 5.5.2011 per Hon. Tang Acting CJHC (as he then was) at §§11-12.

20.  On the first ground alone, the present application should be granted. Before turning to the second ground, I should make it clear that I do not accept the submission of Ms Tsau that the usual costs order in default judgment applications crossed over with retrospective leave summons should be in favour of the plaintiff. The question of costs is very much a fact-sensitive issue and has to be decided on its own facts.

21.  Indeed in a recent decision of the Court of Appeal in Harbour Hero Enterprises Limited v Chau Nung Tai[2019] HKCA 565, the defendant succeeded in setting aside a regular judgment. The costs for resisting the setting aside application was, however, ordered to be borne by the plaintiff by reason of the fact that the merits of the defence had been sufficiently disclosed by the defendant in the supporting affirmation. This was also the same approach adopted by Chung J in Welson International Ltd v Jebson Investments Ltd, unreported, HCA 2620/2008, 29.6.2010.

22.  The second ground can be disposed of briefly. Ms Tsau fairly identified the high threshold that an applicant for indemnity costs should meet. He has to demonstrate that there is something in the conduct of the action or other circumstances of the case that takes it out of the norm which warrants an order for indemnity costs. He has to show that the paying party’s conduct, though not necessarily in lack of moral probity or deserving moral condemnation, must be unreasonable to a high degree: Wong Yung Tai v Top Eagle Security Management Ltd[2019] HKDC 408 per HHJ Winnie Tsui at §§41-43.

23.  Ms Tsau raises two points for this ground. First she submits that Ms Tseng failed to negotiate with Ms Tang about settlement after the receipt of the 24/12 Letter other than repeating her unrealistic counter-offer.

24.  Ms Tseng’s position stated in Ho’s letters was misplaced. She was simply misguided in my view and she did not really refuse to negotiate with Ms Tang. I cannot accept that she was unreasonable to a high degree.   

25.  Ms Tsau further points out that Ms Liao was late in the lodging of her skeleton submissions for the hearing on 31 January 2019. She only lodged the said document at 2:48 pm on 29 January 2019 when she should have done so at 9:30 am.

26.  Practitioners are expected to comply with the applicable practice directions in lodging their skeleton submissions. This court frowns upon such non-compliances and, where real prejudice can be shown, shall not hesitate to sanction the defaulters. The defaulters should also be ready to give an explanation for the delay and duly apologize for the same to all other parties.

27.  Ms Liao did not deal with this complaint at all in her reply submissions, let alone proffering an explanation and still less an apology. Plainly, the 5-hour delay, in the absence of prejudice, would not render the conduct of Ms Tseng unreasonable to a high degree to justify indemnity costs. It would be disproportionate to penalize Ms Tseng in costs on account of the immaterial delay.

Conclusions and dispositions

28.  For the reasons given, I accept that the costs order nisi should be varied to the extent that Ms Tseng should forthwith pay Ms Tang her costs of both Summonses up to 24 December 2018 including the reserved costs before the master with certificate for counsel, to be taxed if not agreed and thereafter costs of both Summonses and the Summons with certificate for counsel on an indemnity basis.

29.  I thank both counsel for their assistance in this matter.

DCCJ 2061/ 2018

[2019] HKDC 469

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION No. 2061 OF 2018

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_______________________________________

DECISION

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Introduction

1.  The failure of Ms Tseng to file and serve her defence within the prescribed time gave rise to two applications calling for my determination. First, by summons dated 8 October 2018 (“the Default Judgment Summons”), Ms Tang applies for default judgment and then by summons taken out two days later (“the Retrospective Leave Summons”), Ms Tseng applies for retrospective leave to file her defence out of time. Ms Tseng filed and served her purported defence (“the Defence”) without leave on 28 September 2018, two days after it was due on 26 September 2018.

2.  Both Ms Tsau, for Ms Tang, and Ms Liao, for Ms Tseng, agree that in line with the authorities[1], I should deal with the Retrospective Leave Summons first. Before doing so, I should mention the state of evidence before me.

3.  To support the Default Judgment Summons, CLY Lawyers, acting for Ms Tang, filed two affirmations by their staff to prove service of various legal documents relating to the application. On the other hand, Ms Tseng did not file any affirmation in support of the Retrospective Leave Summons when it was taken out.

4.  When the two Summonses first heard by a master on 24 October 2018, in addition to the adjournment of the substantive hearing of the two Summonses to this court, the master made an order (“the Order”) and gave Ms Tseng leave to file and serve an affirmation regarding the two Summonses within 21 days and leave for Ms Tang to file and serve an affirmation in reply, if any, regarding the Retrospective Leave Summons only. No further affirmation without leave is allowed under the Order.

5.  I should point out that it is only trite that in relation to the Default Judgment Summons, no evidence should be received[2]. I note the disagreement of Ms Liao based on the decision of DHCJ Marlene Ng (as she then was) in Lung Ka Kuen v Chu Chun Yuk Alias Chu Chun Yuk Margaret and Anor., unreported, HCA 2832/2015, 24.10.2016 in this regard and for the reasons given below, I do not need to deal with her arguments. In respect of the Retrospective Leave Summons, Ms Tseng being the applicant should have the last word on evidence.

6.  Pursuant to the Order, Ms Tseng filed two affirmations both dated 14 November 2018. Ms Tseng made an affirmation herself to oppose the Default Judgment Summons (curiously enough not to support the Retrospective Leave Summons) and there she set out her purported defence. On the other hand, Ms Vivian Tang of Messrs Ho & Associates, her solicitors, made an affirmation to explain the 2-day delay. In my view, both affirmations should be regarded as the supporting affirmations in support of the Retrospective Leave Summons. Ms Tsau does not take issue with this anyway. I shall consider all the affirmations for the purpose of the Retrospective Leave Summons.

7.  Ms Tsoi of Messrs CLY Lawyers filed an affirmation in reply dated 4 December 2018 (“the Reply Affirmation”). Ms Tang has not filed any affirmation herself to rebut the allegations of Ms Tseng.

The Retrospective Leave Summons

8.  The applicable legal principles are not in dispute. The two conflicting principles identified in The Decurion [2012] 1 HKLRD 1063 are at play. First, the procedural rules are to be observed and the default by a party may result in the entry of judgment against it. Second, a party should not be deprived of an adjudication on the merits due to a procedural default unless there is prejudice to the other party which cannot be compensated by costs. Neither of these principles is overriding.

9.  When the defence is at least arguable, the court should treat it as an important factor in the balance when considering whether or not to exercise its discretion to grant the extension of time sought: California Insurance Company Ltd and Ors. v Choung Suk Wah and Ors., unreported, HCA 172/2002, 19.9.2002, §§44-48 per DHCJ A Cheung (as he then was).

10.  I start with the explanation for the 2-day delay given by Ms Vivian Tang. She frankly admitted in her affirmation that it was due to her erroneous calculation of the due date of the defence. She mistakenly thought that the summer vacation referred to in O.3 r.3, Rules of the High Court would be applicable to civil proceedings in the District Court and time did not run in August without knowing that there is no corresponding provision in the Rules of the District Court.

11.  I accept the submission of Ms Tsau that Ms Vivian Tang, given her legal experience and the Notice of Intention to Enter Judgment served on Ms Tseng on 12 September 2018, should have found out the correct position and avoided the default.

12.  However, I am convinced that it was a genuine mistake and the delay is only minimal. I fail to see how Ms Tang was prejudiced by the two-day delay in the scheme of things. I cannot accept that it was a delaying tactics on the part of Ms Tseng to file her defence two days late. The risk and the costs are far too high for her to take such a course and the default could serve no tactical purpose.

13.  I now turn to assess the merits of the Defence. In light of my foregoing observations about the 2-day delay, an arguable defence would suffice to entitle Ms Tseng to retrospective leave to file the Defence.

14.  The bone of contention in these proceedings is the beneficial ownership of the 315,000 shares (“the Relevant Shares”) of Fu Ren Financial Services Limited (“the Company”) now registered in the name of Ms Tseng. Ms Tang claims that Ms Tseng holds the Relevant Shares on trust for her and, among other matters, seeks a declaration to this effect.

15.  Ms Tang’s pleaded case can be outlined as follows.

16.  The Company is locally incorporated and Ms Tseng is its founder. It has 5,000,000 issued shares and Ms Tang subscribed 250,000 of them in consideration of HK$250,000. On 29 November 2009, Ms Tang further acquired 65,000 shares of the Company from another shareholder and thus held the Relevant Shares.

17.  On the other hand, from 2007 to August 2010, Ms Tseng held 1,300,000 shares. Ms Tang and Ms Tseng are not related and their relationship is of a business nature. 

18.  In September 2010, Ms Tseng represented to Ms Tang that in order to enhance the appeal of Ms Tseng to the potential clients of the Company as its majority shareholder, Ms Tang should transfer to her the Relevant Shares and she would hold them on trust for her. She explained that this arrangement would benefit the Company and its shareholders including Ms Tang.

19.  Ms Tang agreed to this arrangement and a trust agreement was signed on 21 September 2010 (“the Trust Agreement”). The Trust Agreement provided that Ms Tseng should merely hold the legal title of the Relevant Shares whereas Ms Tang should have equitable rights over the Relevant Shares.       

20.  On 24 September 2010, solely for the purpose of effecting the transfer of the legal title of the Relevant Shares (“the Transfer”), the Bought and Sold notes relating to the Relevant Shares were duly signed by Ms Tang as vendor and Ms Tseng as purchaser. Pursuant to the understanding of the parties, no consideration was given by Ms Tseng for the Transfer.

21.  There are other allegations made against Ms Tseng concerning her fiduciary duties allegedly owed to Ms Tang as her trustee. They are premised upon the alleged equitable interest of Ms Tang in the Relevant Shares. The central issue remains to be the existence of the alleged trust relationship.

22.  In her 3-page Defence, Ms Tseng has another story to tell. She first pointed out that on 20 September 2010, Ms Tseng entered into a Sale and Purchase Agreement (“the SPA”) with Ms Tang. By the SPA, Ms Tseng agreed to purchase the Relevant Shares from Ms Tang in consideration of HK$20,000 (“the Consideration”).

23.  Pursuant to the SPA, the parties executed the Bought and Sold notes to effect the Transfer on 24 September 2010.

24.  On or around 7 November 2010, the former solicitors of Ms Tseng sent a cheque in the sum of HK$20,000 (‘the Cheque”) to Ms Tang to pay the Consideration.

25.  In May 2012, Ms Tseng found out that the Cheque had never been presented. Therefore, on or about 17 May 2012, her former solicitors deposited a sum of HK$20,000 into the bank account of Ms Tang with Hang Seng bank (“the Deposit”).

26.  On or about 1 June 2012, the former solicitors of Ms Tseng received a cheque of HK$20,000 (‘the Refund Cheque”) from the former solicitors of Ms Tang with a covering letter. In the covering letter, an allegation that Ms Tseng held the Relevant Shares on trust for Ms Tang was made.

27.  It is remarkable that in the Defence, Ms Tseng dealt with the Trust Agreement, which is undoubtedly cogent evidence of the beneficial ownership of the Relevant shares, only by way of a simple denial of its very existence.

28.  I should add that in the statement of claim, Ms Tang also mentioned the Cheque, the Deposit and the Refund Cheque.

29.  In her 2-page affirmation consisting of 8 short paragraphs, Ms Tseng repeated her denial of the existence of the Trust Agreement and asserted that she has a bone fide and meritorious defence.

30.  She also referred to a witness statement filed by Ms Tang dated 19 March 2012 with the Labour Tribunal in support of her claim against the Company for, among other things, arrears of wages under LBTC 1001/2002 (“the Witness Statement”). There, she described herself as Human Resources Director and Acting General Manager with a monthly salary of HK$40,000.

31.  In the Witness Statement, Ms Tang demanded the return of the Relevant Shares. She explained that by the end of 2010, the shareholding of Ms Tseng in the Company was increased from 26% to 48.6% by her acquisition of shares sold by other members or transferred by other members to her to hold the same for them temporarily. Ms Tang wished to increase her shareholding in order to facilitate her solicitation of business opportunities for the Company. She alleged that the considerations of such transfer were paid by an account of an overseas company having a similar business name. It is noteworthy that she alleged that after the Transfer, she repeatedly demanded Ms Tseng to sign a trust agreement but Ms Tseng kept delaying.

32.  I have studied the Annual Return of the Company dated 6 June 2018 and the Trust Agreement.

33.  As mentioned, Ms Tang merely relies on the Reply Affirmation to oppose the Retrospective Leave Summons. There, Ms Tsoi merely stated that the Trust Agreement was executed by Ms Tang and Ms Tseng before a witness on 21^st September 2010. However, the execution was well before the retainer and she did not explain how she acquired the knowledge of the execution of the Trust Agreement apart from reading the document herself.

34.  Ms Tsoi further averred that the Trust Agreement had been in the safe custody of her firm since August 2018. 

35.  The bulk of her affirmation focuses on the conduct of Ms Tseng and her legal advisers in these proceedings. It sheds little light on the main controversy between the parties and has little evidential value.

36.  Before making my assessment of the merits of the Defence, I should express my dissatisfaction with the quality of the evidence filed by both parties. There are a lot of gaps to be filled and certain relevant documents such as the SPA and the Bought and Sold notes are not even produced.

37.  For the following reasons, I conclude that Ms Tseng has at least an arguable defence that the Transfer was made pursuant to the SPA rather than the Trust Agreement. In other words, Ms Tseng does not hold the Relevant Shares on trust for Ms Tang as alleged.

(1) Alarmingly, Ms Tang has said nothing about the SPA and the Consideration. She does not deny the existence of the SPA. For the Transfer, the SPA should not be an essential document. If it did exist, an explanation should be given by Ms Tang.

(2) I have no idea why it was only after about seven weeks from the date of the SPA that the Cheque was sent to Ms Tang’s former solicitors to settle the Consideration. I am equally perplexed by the fact that Ms Tang’s former solicitors did nothing to return the Cheque and clearly state the true position to Ms Tseng by way of correspondence.

(3) Ms Tang’s assertion in the Witness Statement does cause me some concern about the authenticity of the Trust Agreement. If the Trust Agreement was executed in September 2010 round about the same time when the Transfer was made, there is no reason why Ms Tang complained about the purported delay of Ms Tseng in executing a trust agreement concerning the Relevant Shares in 2012. This inconsistency cries out for an explanation and the silence of Ms Tang is deafening.

(4) The purported reason given by Ms Tseng to Ms Tang for the Transfer is unconvincing. I cannot readily believe that Ms Tang would be persuaded by such a reason to part with the Relevant Shares, which she had paid a substantial amount to acquire.

38.  I am unable to accept the submission of Ms Tsau that the Consideration is incredibly small taking into account the price that Ms Tang paid for the acquisition of the Relevant Shares at the outset. Contrary evidence to challenge the Consideration should be adduced by Ms Tang but she just failed to say a word about it. I, thus, am not in a position to come to the conclusion advocated by Ms Tsau.

39.  It is not desirable for me to delve further into the respective cases of the parties once I have come to the conclusion that the Defence is at least arguable and the claim of Ms Tang is questionable. I am aware of all other allegations and criticisms about the conduct of Ms Tseng and her legal advisers, both former and current, but they could not in any way alter my view on the merits of both the claim of Ms Tang and the Defence.

40.  Coupled with the fact that the delay is minimal and insignificant, I would exercise my discretion to grant Ms Tseng retrospective leave to file the Defence. Overall justice demands a proper adjudication of the dispute between the parties.

The Default Judgment Summons

41.  In light of my foregoing conclusion on the Retrospective Leave Summons, the Default Judgment Summons must fall away. I need not express my view on Ms Liao’s submission that evidence should be received for the purpose of the Default Judgment Summons. 

Conclusions and Dispositions

42.  For the reasons given, I allow the Retrospective Leave Summons and grant the retrospective leave sought whereas the Default Judgment Summons should be dismissed.

43.  Ms Tang was, in my view, perfectly entitled to take out the Default Judgment Summons despite the filing of the Defence without leave. However, after the completion of the filing of evidence, the parties should have taken a realistic approach to this matter with a view to an expeditious determination of their core dispute. With a modicum of common sense and good judgment, this hearing might well have been avoided. Argy-bargies in correspondence proved to be counter-productive and incurred unnecessary costs. This must be discouraged.    

44.  In the circumstances, I make an order nisi that Ms Tseng should forthwith pay Ms Tang her costs of the Default Judgment Summons and the Retrospective Leave Summons up to 18 December 2018 (2 weeks after the filing of the Reply Affirmation) including all the reserved costs before the master with certificate for counsel, to be taxed if not agreed. Thereafter, each party do bear her own costs of both Summonses.

45.  It remains for me to thank both Ms Tsau and Ms Liao for their helpful submissions.