LING MAN YIU RAYMOND t/a BUILD TECH ENGINEERING CO v. YAU LUEN METAL WORKS LTD

DCCJ 4198 & 5285/2019 (Consolidated)

[2023] HKDC 1161

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 4198 & 5285 OF 2019

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(Actions consolidated by the Order of Master Maurice Lam dated
14^th April 2021)

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JUDGMENT

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1.  These consolidated actions concern disputes arising out of or in connection with a sub-contract (the “Sub-Contract”) by which the defendant engaged the plaintiff to supply and apply a fire protective coating system/fire resistance mastic coating system in a Biodiesel Plant project at the Tseung Kwan O Town Lot No 39 (the “Project”) for the defendant, which in turn was a sub-contractor to the main contractor of the Project, China Harbour Engineering Company Limited (“CHE”).

2.  In these actions, the plaintiff claims:-

(1)  the sum of HK$439,509.50 under the Sub-Contract; and

(2)  the value of a dishonoured cheque of HK$120,000 issued by defendant to the plaintiff dated 31 October 2013 (the “Cheque”) and interest accrued thereon pursuant to sections 57(a)(ii) of the Bills of Exchange Ordinance (Cap 19) from 31 October 2013 to the judgment date and thereafter at judgment rate until payment.

3.  The defendant counterclaims the sum of HK$267,198.48 (or HK$387,194.98 in the event the defendant is found liable under the Cheque) being the sum which the plaintiff owes to the defendant under the Sub-Contract.

4.  On 26 June 2023, the day before the trial was to commence, the plaintiff took out a summons to strike out part of the Amended Defence and Counterclaim filed on 2 June 2023 pursuant to the Order of Deputy District Judge Kenneth KY Lam dated 29 May 2023, on the basis that the amendments made by the defendant at §§9A, 13 and 17 exceeded the scope allowed by the learned Deputy District Judge in his judgment ([2023] HKDC 735) at §§20-23 which concern the propose amendments to the effect that the plaintiff’s “timely settlement” of payments to his sub-contractors being one of the defendant’s conditions of the delivery of the Cheque to the plaintiff.

5.  The defendant’s position is that amendments to the effect that the plaintiff’s settlement of payments to his sub-contractors being one of the defendant’s conditions of the delivery of the Cheque to the plaintiff were allowed on a fair reading of §§20-23.

6.  I dismissed the plaintiff’s summons with costs on 27 June 2023, for the following reasons:-

(1)  The Amended Defence and Counterclaim was filed on 2 June 2023, and the plaintiff filed his Reply on 9 June 2023. I note that the plaintiff sent a letter to the Deputy District Judge to seek clarification earlier. However, there is still no reasonable explanation why he only took out the summons the day before trial.

(2)  On a cursory reading of §§20-23 the judgment, they primarily take issue with the word “timely” but do not expressly take issue with the rest of the proposed amendment. Without determining which is the correct interpretation, it is sufficient for the present purpose to note that that §§20-23 are reasonably capable of giving rise to the interpretation advocated by the defendant.

(3)  In any event, I see no substantial injustice to the plaintiff, in particular given that even before the amendments were introduced, the defendant had adduced two witness statements which expressly made this point, to which the plaintiff also responded in his witness statement (at §28(6)). It cannot be said that the plaintiff was caught off guard by a point suddenly raised by the defendant without any warning.

A.  UNDISPUTED FACTS

7.  Much of the factual background is not in dispute between the parties, which is set out below in this section.

8.  The Sub-contract contains inter alia the following key terms:-

(1)  Clause 2 provides that the amount stated in the quotation is a provisional amount, and the actual area will be measured and calculated in accordance with the construction plan/drawing（報價表中工程量為暫定工程量，實際面積根據施工圖計算實量實度）;

(2)  Clause 3 provides that the total amount of works under the Sub-Contract is approximately HK$1,160,000;

(3)  Clause 5 provides that all the terms and standard of works are subject to the contract between CHE and the defendant（所有條款，收貨標準需根據大判與甲方簽訂合約為準）;

(4)  Clause 10 provides that the plaintiff shall provide all certificates and warranties after completion of works and receipt of all payments（所有證書及保證書乙方於所有工程完成及收妥所有糧款後發放）;

(5)  Clause 12 provides that 5% of each payment shall be withheld as retention, with 2.5% being returned the architect’s approval of the works and the remaining 2.5% to be returned after 14 months（每期糧單要扣起5%作為保固金，2.5%保固金於則師收貨發還，2.5%保固金於14個月滿發還）.

9.  On 9 August 2013, the plaintiff provided a Quotation No FM219/13 (the “FM219 Quotation”) to the defendant by email “to provide labour and material to touch up FM-900 on the structural steel” for the Project for HK$120,000.00. The quotation was accepted by the defendant by email dated 11 August 2013. On 21 September 2013, the plaintiff issued an invoice to the defendant in the sum of HK$120,000 for this work.

10.  On 9 September 2013, the plaintiff issued another quotation No FM225/13 (the “FM225 Quotation”) to the defendant for the provision of labour and materials to apply FM-900 for (a) 1 Hour FRP (Fire Resistant Protection) onto structural steel and touch-up work, and (b) 2 Hour FRP onto structural steel and touch-up work at the Project for HK$12,760.00. The FM225 Quotation was signed by the defendant and returned to the plaintiff. The plaintiff never issued an invoice for work carried out under the FM223 Quotation.

11.  The plaintiff further outsourced his work under the Sub-Contract to Seapark Engineering Company Ltd (“Seapark”) and Nam On Engineering Company Ltd (“Nam On”). The plaintiff failed to settle some of the payments due to Seapark and Nam On, which made complaints to the defendant, leading to the defendant’s direct settlement of sums owed by the plaintiff to Seapark and Nam On on 23 September 2013.

12.  In an email dated 21 September 2013, Lo La Tsung (“Ka Lo”) signing off as “Ka Lo” of the defendant requested the plaintiff to attend the defendant’s office on Monday, stating inter alia that “Please bring the fire protection certificate and we have the cheque ready for you to collect. If you cannot come to our office with following documents, you will be responsible for all the damages that will occur and we will charge for the administrative fee”.

13.  On 23 September 2013, the plaintiff and the defendant had a meeting at the defendant’s office:-

(1)  The plaintiff provided documents dated 18 September 2013 titled “Fireproofing Certificate” signed by the plaintiff to the defendant;

(2)  The defendant gave 2 post-dated cheques (ie a HK$50,000 cheque dated 30 September 2013, and the Cheque dated 31 October 2013) to the plaintiff.

(3)  The plaintiff and the defendant signed a document which was prepared by the defendant confirming that the defendant paid the plaintiff a total of HK$170,000 by the said post-dated cheques as payment for the plaintiff’s works carried out under the Project（“作為支付將軍澳地盤工程費”）.

14.  On the same date, the defendant made payments of HK$154,000 to Seapark and HK$278,280 to Nam On directly to settle fees owed by the plaintiff to them in the Project.

15.  On 30 October 2013, the defendant issued a letter to the plaintiff, stating that the HK$120,000 under the Cheque would only be released until P resolves issues of (1) accounting discrepancies, (2) HK$100,000 and administrative fees being withheld by CHE from the defendant as a result of the plaintiff’s breach of certain labour laws and regulations, and (3) proof of settlement of outstanding sums to Seapark and Nam On, both which continued to request the defendant for direct payment.

16.  On 31 October 2013, when the plaintiff presented the Cheque for payment, it was dishonoured for “PAYMENT STOPPED”.

17.  On 17 November 2013, the defendant issued an interim account statement (the “Interim Account”) to the plaintiff (which the plaintiff counter-signed). For the present purpose, it is sufficient to note that:-

(1)  The value of accumulated works is stated to be HK$2,206,359.50; and

(2)  It recognises the work carried out under the FM219 Quotation as HK$120,000.

18.  The Occupation Permit in respect of the Project was granted on 2 December 2013.

19.  In 2013, the defendant was charged with a series of industrial offences; it was convicted after trial and fined HK$46,500. The defendant’s appeal against the convictions was dismissed by the Court of First Instance on 6 November 2014 in HCMA 3/2014.

20.  On 28 January 2014, the defendant settled a claim for arrears of wages by workers for HK$61,330.00. The defendant wrote to the plaintiff, stating that it would deduct any fines and administrative fees in relation to the Labour Department Case: “LR-24-2013-1917/2022” in accordance with the terms of the Sub-Contract(“根據合約的條文扣回”). In this action, the plaintiff acknowledges that the defendant is entitled to deduct the sum of HK$61,330 from the amount due to the plaintiff but denies the defendant was entitled to deduct any fine/administrative fees under the Sub-contract.

21.  On 22 May 2014, the defendant issued a final account (the “Final Account”) to the plaintiff. The plaintiff did not countersign or indicate his agreement to such.

22.  Apart from the deduction of the sum HK$61,330 (see paragraph 20 above) which was accepted by the plaintiff, the key differences between the Interim Account and the Final Account are that:-

(1)  the accumulated value of works done by the plaintiff decreased from HK$2,206,359.50 to HK$1,893,002.20;

(2)  Deductions totalling HK$333,776.53 consisting of the following:-

(a)  Site Clearance in the sum of HK$2,500.00;

(b)  Sums fined by CHE in the sum of HK$6,100.00;

(c)  Labour Department Fines charged by CHE in the sum of HK$31,000.00;

(d)  Labour Department Fines charged by the defendant in the sum of HK$46,500.00;

(e)  Administration and Legal Fees for Labour Department Summons in the sum of HK$75,000.00;

(f)  D and CHE’s Administration Fees for Labour Department Summons in the sum of HK$60,000.00;

(g)  Legal Fees for Labour Department Summons in the sum of HK$70,000.00; and

(h)  Retention of HK$42,676.53.

23.  Notably, both the Final Account and the Interim Account recognise the work carried out under the FM219 Quotation as HK$120,000.

24.  According to the Final Account, the plaintiff owes the defendant a sum of HK$100,937.33 under the Sub-Contract.

25.  In this action, D produced an unsigned final account (the “Undated Final Account”) in which D makes further amendments to the Final Account, including the reduction of the work carried out under the FM219 Quotation from HK$120,000 to HK$60,000, and further deductions described as administrative charges paid to CHE for outstanding wages owed by the plaintiff to staff and administrative charges for making payments to Seapark and Nam On for the plaintiff etc (the “Deductions”). According to the Undated Final Account, the plaintiff owes the defendant a total of HK$267,194.48. The defendant’s case at trial is based on the calculations in the Undated Final Account.

B.  ITEMS IN DISPUTE UNDER THE SUB-CONTRACT

26.  To sum up, the items in dispute under the Sub-Contract are as follows:-

(1)  What is the value of accumulated works? The plaintiff says it should be HK$2,206,359.50 as stated in the Interim Account. The Final Account states this should be HK$1,893,002.20, while this was further revised down by HK$60,000 in the Undated Final Account by reason of the reduction of 50% of the value of work the FM219 Quotation.

(2)  Is the plaintiff entitled to payment of HK$12,760 for work carried out under the FM223 Quotation?

(3)  Is the defendant entitled to make any of the Deductions?

27.  The defendant also alleges that the plaintiff failed to provide “Proper Certificates” to the defendant. However, it is in fact common ground at trial that, insofar as the quantum/liability under the Sub-Contract is concerned, nothing really turns on this issue. Nevertheless, this issue is dealt with below for completeness.

B.1  The accumulated value of work done

28.  The defendant’s reliance on the Undated Final Account can be shortly dealt with. Mr Lo Kwok Wah (“Mr Lo”) and Ka Lo gave evidence for the defendant. Neither of them was able to explain when or how this Undated Final Account came about, save that it was prepared after the Final Account was issued. There is no explanation from the defendant as to any legal or factual basis why it was entitled to further modify the Final Account after it was issued in May 2014.

29.  On the other hand, the plaintiff relies on the amount stated in the Interim Account. It is accepted by counsel for the plaintiff, Mr Ng, that this being in the nature of interim account, the quantum of the work done may in principle be subject to revision in the final account which was yet to be issued.

30.  However, Mr Ng relies on the fact that the Interim Account was issued on 30 November 2013, which was just a few days before the issuance of the Occupation Permit on 2 December 2013, from which Mr Ng says an inference can be drawn that the plaintiff’s works must have been properly measured before the Interim Account was issued.

31.  With all due respect, I do not think such an inference can be drawn on that basis alone; while the proximity to the issuance of the Occupation Permit may suggest that the Project was completed or close to completion, it does not necessarily follow that the measurement and assessment of works of sub-contractors had been carried out.

32.  The plaintiff’s own evidence (which he gave in re-examination) in this regard is ambiguous. He said that the general practice was for CHE (as main contractor) to measure and assess the value of works done, which could take place before or after the defendant issued interim account statements. However, specifically in respect of the Interim Account, he did not say whether CHE carried out measurement before or after it was issued.

33.  The defendant’s witness Mr Lo’s evidence was that the quantum stated in the Interim Account was not final and subject to revision after the works were properly measured and assessed by CHE and the relevant consultants in the Project, and that even if any measurement had been done before the interim account statements were issued, the defendant tended to take a relaxed attitude in the preparation of the interim account statements, knowing that such could be adjusted in the final account.

34.  Normally in a construction project such as this, one would expect there to be documentary evidence such as reports, certificates, memos issued by various consultants and contractors/subcontractors involved in the project pertaining to the Interim Account and the Final Account. Indeed this was acknowledged by Ka Lo in his evidence at trial.

35.  Regrettably, neither party adduced any such documentary evidence. Assuming the plaintiff was not in possession of such documents, the defendant would likely have access to such documents as it would have needed these documents to substantiate its payment applications to CHE. The plaintiff could have applied for specific discovery against the defendant for such documents to substantiate its position that the value of accumulated work as stated in the Interim Account and not that of the Final Account should be the correct amount. If the defendant then refuses to provide such documents without any reasonable explanation, perhaps it would have been sufficient for this court to draw an inference against the defendant in such circumstances. However, this was not done.

36.  In these circumstances, the state of the evidence is highly unsatisfactory. There is no evidence before this court to determine which of the sums stated in the Interim Account and the Final Account should be preferred. I am left with no choice but to resolve this issue based on the burden of proof. Since the burden is on the plaintiff to prove his claim and he fails to substantiate the amount of the value of accumulated works as stated in the Interim Account, I shall adopt the amount which was accepted by the defendant in the Final Account under this head, ie HK$1,893,002.20.

B.2  The FM223 Quotation

37.  As for works under the FM223 Quotation, it is not disputed that it was signed and accepted by both parties. However, there is no documentary evidence or record that the works were actually carried out.

38.  More importantly, the payment terms of the FM223 Quotation were “30 days upon presentation of invoice”. Although the plaintiff said he called the defendant’s manager to ask for payment of this item, it is not disputed that the plaintiff never issued an invoice. Therefore, the plaintiff has failed to prove his claim in respect of the FM223 Quotation.

B.3  The Deductions

39.  Save for the retention money withheld, counsel for the defendant, Ms Leung, relies on Clause 5 of the Sub-Contract which she says shows the Sub-Contract was made in reference and subject to the contract (the “CHE Contract”) between CHE and the defendant. It is not clear to me whether the defendant’s case is in fact that terms of the CHE Contract were incorporated into the Sub-Contract by reference.

40.  Nevertheless, even assuming this is in fact the defendant’s case, it is bound to fail:-

(1)  The defendant has not pleaded what terms of the CHE Contract, if any, are incorporated into the Sub-Contract. It cannot be the case that all the terms of the CHE Contract (which necessarily encompass terms which are completely unrelated to works under the Sub-Contract) are incorporated.

(2)  It is trite that for terms in a separate document to be incorporated, the document is usually made available to the other party or at the very least reasonable notice of such a document or the terms should be given (see Chitty on Contracts, 34^th Edition, Vol 1, §§15-007-15-0011). The defendant has not pleaded how any terms of the CHE Contract were incorporated into the Sub-Contract. There is no evidence that the plaintiff was given a copy of the CHE Contract or notified that certain clauses which the defendant would seek to incorporate into the Sub-Contract. Indeed Mr Lo’s own evidence is that he himself did not even read the CHE Contract, whereas Ka Lo was not involved in the negotiation and signing of the Sub-Contract.

(3)  Moreover, for an onerous or unusual term to be incorporated, it should have been specifically drawn to the other party’s attention (Interfoto Picture Library Limitedv Stiletto Visual Programmes Ltd [1987] 1 QB 433). If the defendant wishes to incorporate a term to the effect that it would be entitled to impose “administrative charges” which appear to be punitive in effect, it seems to me the defendant should have specifically drawn such a term to the plaintiff’s attention. Again there is no evidence that this was done.

41.  As to the retention, the defendant has not pleaded any basis for withholding such. On the face of clause 12 of the Sub-Contract, the remaining 2.5% of the retention money was to be returned after 14 months upon the approval of the works by the architect. With the Occupation Permit being issued in December 2013 and the Final Account in May 2014, it would appear that the period for which the defendant was entitled to withhold the retention money had long expired before the commencement of these actions. There is no evidence before me to suggest otherwise.

42.  That being the case, the defendant is not entitled to make the Deductions from the amount due to the plaintiff.

B.4  “Proper Certificates”

43.  The defendant alleges that the plaintiff failed to provide “Proper Certificates” to the defendant, but it has not pleaded what really constitutes “Proper Certificates” or any contractual basis for such “Proper Certificates” required by it.

44.  On the face of the Sub-Contract, the plaintiff is only obliged to provide the certificates after the completion of the works and upon being paid. The defendant does not allege that it suffered any loss or damage as a result of the plaintiff’s alleged failure to provide “Proper Certificates” which it may be entitled to set off or counterclaim against the plaintiff.

45.  Ms Leung for the defendant accepts that the plaintiff’s alleged failure to provide “Proper Certificates” does not impact on the assessment of the sum due to the defendant.

46.  Nevertheless, the defendant’s witnesses were adamant that “Proper Certificates” must be accompanied by reports issued by Tai Hing Hong, which were missing from those provided by the plaintiff.

47.  After the plaintiff commenced these proceedings in which the defendant disputed the validity of the plaintiff’s certificate, the plaintiff produced a letter dated 14 October 2019 which was on the face of it issued by Tai Hing Hong, confirming that P was an Approved Applicator for Taiwan Rainbow Firecut FM-900 Fire Resistance Coating. The defendant’s witnesses disputed the authenticity of this letter. According to Ka Lo, he made enquiries with Tai Hing Hong by phone after the commencement of these proceedings and he alleged he had reasons to believe the letter was not issued by Tai Hing Hong. However, there is nothing definitive to support his allegation that the letter dated 14 October 2019 was forged.

48.  There is also no evidence that the defendant ever requested the plaintiff to provide reports of Tai Hing Hong before the commencement of these proceedings. In the letter dated 30 October 2013 in which the defendant informed the plaintiff its decision to stop payment under the Cheque until certain conditions were met, the defendant made no mention of its alleged concern of the “Proper Certificates”.

49.  In the end, despite the parties spending considerable amount of time on this matter at trial, nothing turns on it for the purpose assessing the total amount due under the Sub-Contract, for the reasons that (1) the defendant did not plead the contractual basis on which it alleges “Proper Certificates” must be accompanied by reports issued by Tai Hing Hong, (2) on the face of the Sub-contract, no such requirement existed, and (3) in any event, Occupation Permit was issued and there is no evidence that the lack of Tai Hing Hong reports caused any problem to the defendant.

B.5  Amount due to the plaintiff under the Sub-Contract

50.  To conclude, the total amount due to the plaintiff under the Sub-Contract is:-

Item		Amount (HK$)
Accumulated works under the Sub-Contract		1,893,002.20
Less:	Deduction for works carried out by Hau Yu in lieu of the plaintiff (as accepted by the plaintiff)	140,000.00
Less:	Amount paid by the defendant under the Sub-Contract	1,458,280.00 __________
Total		294,722.20 =========

51.  If the plaintiff is also successful on his claim in respect of the Cheque, the sum of HK$120,000 should be deducted from judgment for the amount due under the Sub-Contract.

C.  THE CHEQUE

52.  The defendant’s pleaded case is that the Cheque was issued to the plaintiff on the conditions that (1) P supplied the “Proper Certificates”, and (2) settling payments to its subcontractors.

53.  The principles concerning dishonoured cheques are trite:-

(1)  a cheque is an unconditional order in writing, addressed by a person to his banker, signed by the person giving it, requiring the banker to whom it is addressed to pay on demand a sum certain in money to or to the order of a specified person, or to bearer. (Lam Tai Kwan v Lo Wai Kit [2007] 1 HKLRD 367 at §10)

(2)  Section 21 of the Bills of Exchange Ordinance (Cap 19) allows evidence to be led (other than as against a holder in due course) that there was no delivery by the defendant with the intention of transferring property in the instrument, or that the delivery was subject to the fulfilment of a condition suspending the operation of the instrument. (Lin Hsien Tseng v So Sin Mui Bonnie [2002] 4 HKC 532 at §19)

(3)  In other words, oral evidence is admissible where it seeks to prove that the cheque is not delivered operatively until the satisfaction of a condition. On the other hand, oral evidence is not admissible where the cheque is delivered operatively but subject to an oral agreement in defeasance of the drawer’s liability on the cheque. (Mak Yung Nin v Li Wing Yiu Samuel, Unreported, DCCJ 1965/2015, 28 October 2015)

C.1  Evidence concerning the alleged conditions

54.  The defendant’s two witnesses gave evidence as follows:-

(1)  Mr Lo’s evidence is that at the meeting on 23 September 2013, he informed the plaintiff that the Cheque was issued as payment for works done in the Project on two conditions. The plaintiff and the defendant signed a document prepared by the defendant confirming that the defendant paid the plaintiff a total of HK$170,000 by the said post-dated cheques as payment for the plaintiff’s works in the Project, in which no condition was mentioned. In this regard, Mr Lo said he instructed his colleagues that the Cheque was to be issued with the conditions and he did not know why the conditions were not mentioned in the document but he was certain that he told the plaintiff the conditions orally. Mr Lo admitted that his memory of that day was vague since it was many years ago but he was adamant that he must have informed the plaintiff of the said conditions.

(2)  Ka Lo was not present at the meeting on 23 September 2013 and had no personal knowledge of the matters discussed at the meeting. However, he was adamant that Mr Lo must have told him what had happened at the meeting as he would need to prepare documents according to Mr Lo’s instructions, and he sent letters to the plaintiff both before and after the said meeting. Ka Lo also did not explain why no conditions were mentioned in the document (which was prepared by the defendant and issued on the defendant’s letterhead) dated 23 September 2013 if indeed such had been insisted upon by Mr Lo at the meeting.

55.  The plaintiff denies any such conditions were mentioned on the day or at all.

56.  Even after taking the defendant’s evidence into account, I find that the Cheques were delivered unconditionally on the balance of probabilities:-

(1)  If it had been the case that Mr Lo had been adamant in his meeting with the plaintiff that conditions were attached to the Cheque as alleged, it would be surprising that such conditions were not stated in the document dated 23 September 2013 which was prepared under Mr Lo’s instructions;

(2)  Had it been the case that conditions were attached to the Cheque and not the other cheque of HK$50,000 which was delivered on the same date under the same cover document, it would be surprising that no differentiation between the two cheques was made in the letter;

(3)  In the letter dated 30 October 2013, the defendant stated that because various issues had emerged, payment under the Cheque would only be released upon the resolution of those issues（“由於出現以下之情況：… 因此貴司之十三萬支票將押後…直至解決以上問題才可放糧”）.

(a)  Coupled with the fact that no conditions were mentioned in the document signed by the parties dated 23 September 2013, this appears to me to be a clear indication that the Cheque was in fact delivered to the plaintiff operatively, but because certain matters which emerged after the delivery of the Cheque, the defendant then decided that the Cheque should not be honoured unless and until those issues were resolved.

(b)  Further, there is no mention of the “Proper Certificates” at all in this letter. Rather, the letter mentions two other matters which are unrelated to the alleged conditions as reasons for withholding payment (see paragraph 15 above).

57.  For the above reasons, the Cheque must be treated as having been delivered to the plaintiff operatively. As such, parol evidence relating to the alleged conditions is inadmissible.

C.2  The defendant’s liability

58.  Even assuming the conditions did exist as alleged by the defendant, there is no evidence to show that the plaintiff failed to comply with them:-

(1)  There is not a shred of evidence to show that the certificates provided by the plaintiff was not adequate, especially given that the Occupation Permit was issued in the Project. As I mentioned above, in the letter dated 30 October 2013 in which the defendant informed the plaintiff its decision to stop payment under the Cheque, the defendant made no mention of any concern about the certificates.

(2)  Although the defendant alleged that Nam On and Seapark made complaints that the plaintiff failed to settle their fees, no particulars as to the amount claimed, how or when the sums arose or when they fell due is provided, and there is no documentary evidence of such. Neither of the defendant’s witnesses was able to provide any information on these save for some vague allegation that there was some chatter or complaints on the site. If there indeed had been further incidents of failure by the plaintiff to settle their fees, it would be surprising that no evidence or further particulars is available.

59.  In these circumstances, it seems to me that even if the conditions did exist as alleged, the defendant is still liable under the Cheque.

D.  DISPOSITION

60.  I therefore give judgment as follows:-

(1)  The defendant does pay the plaintiff the sum of HK$120,000 due under the Cheque and interest on the sum from 31 October 2013 at 1% above HSBC prime rate and thereafter at judgment rate until payment;

(2)  The defendant does pay the plaintiff HK$174,722.20 which is due under the Sub-Contract together with interest from 22 June 2014 (one month from the date of the Final Account) at 1% above HSBC prime rate and thereafter at judgment rate until payment.

61.  I also make an order nisi that the defendant pay the plaintiff’s costs of the actions including all costs reserved, to be taxed if not agreed, with certificate for one counsel. The Plaintiff’s own costs be taxed in accordance with the Legal Aid Regulations. The order nisi will become absolute unless either party takes out a summons to vary it within 21 days.

62.  Lastly, I thank Mr Ng and Ms Leung for their assistance.

Mr Ng Man Sang Alan (assigned by the Director of Legal Aid),

Ms Mandy Yau and Mr Chris Xia (both on pro bono basis), instructed by Messrs Michelle Ip & Co., assigned by the Director of Legal Aid, for the plaintiff

Ms Lydia Leung, instructed by Messrs Lam and Lai for the defendant

DCCJ 4198 & 5285/2019 (Consolidated)

[2023] HKDC 735

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 4198 & 5285 OF 2019

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DECISION

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Introduction

1.  This action was set down for trial in January 2022. There was a PTR before DDJ Frances Lok on 24 March 2023. The trial shall start on 27 June 2023. On 27 April 2023 (ie, a month after the PTR, and two months before the start of the trial), the Defendant (“D”) took out a summons (“the Summons”) to seek leave to amend its Defence and Counterclaim, and the draft Amended Defence and Counterclaim (“Draft AD&CC”) was, as one would expect, annexed to the Summons.

2.  The Plaintiff (“P”), with the assistance of his legal team, duly considered his position and confirmed, via his counsel Ms Mandy Yau, that P shall only object to some of the proposed amendments, namely, §§4, 8(2), 9A, 12, 13, 15A, 17, 22 & 26 of the said Draft AD&CC (collectively, “the Disputed Amendments”), and gave his reasons.

3.  The Defendant (“D”), similarly with the assistance of lawyers, considered such objections but maintained, via its counsel Ms Lydia Leung, that the Disputed Amendments were proper and insisted on all of them.

4.  The Summons came to be heard by me. I have to consider the Disputed Amendments and give consequential directions, bearing in mind the trial shall start on 27 June 2023.

5.  This is my decision on the Disputed Amendments.

Background Facts

6.  According to P’s Statement of Claim (“SoC”), P & D worked on a construction project in Tseung Kwan O (“the Project”). The main contractor was China Habour Engineering Company Limited (“CHE”), D was the sub-contractor, and P was the sub-sub-contractor.

7.  It is of some relevance that in §4 of the SoC, P said CHE and D entered into a sub-contract for the Project on 25 November 2011 (“the Contract”), and that D “should have” complied with all the requirements of the Contract. It is unclear to me what “should have” means. I will come back to this.

8.  P then went on to say P and D had on 3 August 2012 entered into a contract (“the Sub-Contract”) for the supply and application of fire protective coating (“the Services”).

9.  In §6 of the SoC, P said there were “two additional contracts” between P and D. Curiously, P then went on to say the additional contracts were (1) Quotation No FM219/13 dated 9 August 2013; (2) Quotation No FM225/13 dated 9 September 2013; and (3) oral agreement of the parties for the Services. I counted three, instead of two, additional contracts.

10.  Importantly, and this is relevant to counsel’s submissions, P’s averments were in clear breach of well-known pleading rules, as correctly explained in HKCP 2023, §18/12/4. This was not made the subject of any application. In fairness to P’s current counsel, I should emphasize the SoC was not settled by her, so when I criticize the drafting, I am not criticizing her. The SoC was settled by solicitors, without counsel’s assistance.

11.  From §8 of the SoC onwards, the drafting problems got worse. The averments seem to say P’s case is for (1) HK$120,000 (“the 1^st Sum”) by way of a dishonoured cheque claim; plus (2) HK$495,509.50 (“the 2^nd Sum”). For the 2^nd Sum, P’s claim seems to have been framed as a simple debt claim, as opposed to a claim for breach of contract with compensatory damages to be assessed.

12.  On 21 July 2021, D filed and served its original Defence and Counterclaim (“Original D&CC”). Its drafting was just as bad. Similarly, in fairness to D’s current counsel, I should emphasize the Original D&CC was not settled by her, so when I criticize the drafting, I am not criticizing her. By §5 to §7 of the Affirmation of Lee Chi Keung Jim filed on 27 April 2023, D voluntarily disclosed, in its attempt to explain its delay in taking out the Summons, that it was D’s current counsel, recently instructed, who advised D that an amendment to the Original D&CC would be necessary.

The Law

13.  The parties cited numerous authorities to me. I considered all of them. In my view, it is unnecessary to recite any of them. The relevant principles are trite and had been neatly summarized by Ng J in Re Hin-Pro International Logistics Ltd [2016] 1 HKLRD 1367 (§8). In Yip Wai Tak Vivian v Lee Ka Wo Esmond & 3 Others[2022] HKDC 621, DDJ Joseph Vaughan also summarized the relevant considerations when an application for amendment of pleadings is only made very close to the commencement of trial. I have considered those as well.

The Disputed Amendments

14.  P objected to §4 of the Draft AD&CC. P said D was trying to withdraw an admission, and that should not be allowed. My understanding is that the “admission” was an admission (by not denying) that D “should have” complied with all the requirements of the Contract. As I have alluded to above, however, it is unclear to me what “should have” means. Just by reading the SoC, “should have” could mean “most probably have”, or the phrase could mean “legally obliged to but did not”. Even if D had admitted to the phrase “should have” by not denying it, the admission is neither here nor there, because it is wholly unclear what, if anything, was admitted. In such circumstances, even if the amendment would amount to withdrawing that admission, in my view that would be beneficial, not detrimental, to the trial judge’s handling of this matter, and should be allowed. I allow §4 of the Draft AD&CC.

15.  P then objected to §8(2) of the Draft AD&CC, which says:-

“The ‘oral agreement’ of the parties referred to in paragraph 6 is vague, lacking in particulars, and therefore not admitted.

However, it is averred that there were some oral agreements made between the parties at the material times, including but not limited to: -

(a) An oral agreement in or around August 2012 that the Personal Guarantee signed on 8 August 2012 by both parties covers all and/or any of the Services rendered by the Plaintiff to the Defendant in regards the Project;

(b) An oral agreement referred to in paragraph 10 below;

(c) An oral agreement and mutual understanding that the Plaintiff is responsible for reimbursing and/or indemnifying the Defendant for any payments (including penalties and fines) made by the Defendant on its behalf, including wages in arrears and sub-contractor charges, and/or payments made by the Defendant due to the Plaintiff’s liabilities; and

(d) An oral agreement and mutual understanding that any payment or pre-payment made by the Defendant to the Plaintiff must be deducted from the final account.”

16.  In my view, I should only allow the very first sentence in §8(2) of the Draft AD&CC. I should disallow the rest of §8(2). This is the order I make.

17.  As set out by the editors of HKCP 2023 in their §18/12/4, our pleading rules vis-à-vis all allegations of “agreement” are as follows:-

“Agreement—The pleading should state the date of the alleged agreement, the names of all parties to it, and whether it was made orally or in writing, in the former case stating by whom it was made and in the latter case identifying the document, and in all cases setting out the relevant terms relied on… If the agreement is not under seal, the consideration also must be stated.”

18.  In my view, these pleading rules should be strictly enforced. Any proposed amendment which is in breach of the above must, or at least should, be disallowed because doing otherwise would prejudice, embarrass, or delay the fair trial of this action.

19.  Ms Lydia Leung, counsel for D, helpfully and properly drew my attention to the fact that it was P who failed to provide particulars first. Her observation is correct but with respect it does not assist. The fact that P acted in breach of a pleading rule does not then allow D to act in breach of the same rule, or any rule. No application has ever been made by D vis-à-vis the SoC. The only application before me is the Summons. I cannot change our pleading rules, or lower our standards, just because a different party did something wrong in a different document that has not been made the subject of any application.

20.  P also objected to §§9A, 13 and 17 of the Draft AD&CC, but only vis-à-vis the allegations “the Plaintiff must make timely settlement of payments to its sub-contracts”, “and timely settlements of the Plaintiff’s sub-contractors”, and “the Plaintiff’s timely settlement of amounts due to the Plaintiff’s sub-contractors” (collectively, “the Time Allegations”) on the basis that they are new and, given the horrible timing of the Summons, highly prejudicial to P’s interests.

21.  In response to this objection, Ms Lydia Leung, counsel for D, suggested that it is not for the lawyers to come up with “contrived detail” so that just saying “timely”, without elaboration, is proper.

22.  With respect, I disagree with Ms Leung on this point.

23.  In my view, whether a “timely” action is or is not a condition precedent for delivering, presenting, or depositing a cheque, or is or is not an enforceable contractual term, is an important material fact which needs to be fully particularized. For example, how did the alleged condition come about? Was it express, or implied? If it was express, was it expressed in writing, or orally? By who, to whom, when, where, how, or through what means? If it was implied, was it said to have been implied by law, business efficacy, trade custom, previous dealings, or some other reason? It is never a matter of “contrived detail”, but a matter of avoiding “trial by ambush”. If I were to allow D to plead “timely” without particulars P would be forced to “fight in the dark – not knowing where to hit”, and that cannot possibly be fair, just, or reasonable. It would prejudice, embarrass, or delay the fair trial of this action. I disallow the Time Allegations in their current forms, bearing in mind the trial shall start on 27 June 2023 and P would not have reasonable time to seek particulars, or file new evidence, without derailing the trial.

24.  P also objected to the sentence “It is further averred that such sum should be deducted from the final account between the Plaintiff and the Defendant” in §12 of the Draft AD&CC and gave his reasons.

25.  I disallow that sentence, but for different reasons. In my view, that sentence is an embarrassing plea, and should not be allowed. Bearing in mind the trial shall start on 27 June 2023 and P would not have time to seek particulars, doing otherwise would prejudice, embarrass, or delay the fair trial of this action.

26.  Firstly, just alleging something “should be deducted”, but not saying whether it has in fact been deducted, is embarrassing. What is the reader supposed to make of the allegation?

27.  Secondly, what is the alleged basis of the alleged obligation? Was it a contractual requirement that the sum should be deducted and if so, which term in which contract? Just saying something should be done, but not explaining why it should be done, is embarrassing. Such an allegation cannot be properly responded to and is improper.

28.  All in all, the presence of that sentence will do more harm than good, and I disallow its insertion.

29.  P objected to §15A of the Draft AD&CC which says:-

“Further, in breach of the contract, the Plaintiff failed to settle its accounts with Seapark and Nam On before 30 October 2013.”

30.  In my view, that is also an embarrassing plea. I disallow §15A of the Draft AD&CC. It is unclear, from the plea, just which term of which contract was said to have been breached. Such an allegation is incapable of being properly responded to and is improper.

31.  P objected to §22 of the Draft AD&CC which says:-

“… It is further averred that payments due from the Defendant to the Plaintiff was subject to re-measurement pursuant to clause 2 of the Sub-Contract, and that the ‘Accumulated Project Amount of the Sub-Contract (according to the payment sheet on 17/12/2013’ as pleaded in item 1 of the table in paragraph 19 is outdated… It is averred that, in reference to clause 2 of the Sub-Contract, the Defendant was entitled to re-calculate and adjust any outstanding sum(s) after re-measurement and completion of the Services.”

32.  P’s objection is two-fold. Firstly, P says the interpretation is irrelevant in a pleading (which deals with material facts). Secondly, P says the reference to a document being “outdated” would open the door for new evidence. I disagree with the first point but agree with the second point.

33.  In my view, the proposed clarification from D as to the case it shall run vis-à-vis the interpretation of Clause 2 of the Sub-Contract would be helpful to the trial judge. I allow that part.

34.  Bearing in mind the trial shall start on 27 June 2023, I disallow that part which reads “and that… is outdated” both on the ground that that part would “open the door” for new evidence, and on the ground that it is embarrassing. Just saying a document is outdated, without explaining why it is outdated, or which document, then, is the current one, is embarrassing. Allowing it would prejudice, embarrass, or delay the fair trial of this action.

35.  Lastly, P objected to §26 of the Draft AD&CC. That is a plea of loss. P’s point is simple. D has already pleaded loss twice, once in §24, and again in §32. Pleading loss for a third time serves no purpose. Whilst I can certainly see the point, allowing the plea would cause no harm either. In the exercise of my discretion, I allow §26 of the Draft AD&CC.

36.  Towards the end of her submissions, Ms Mandy Yau, counsel for P, added a general “catch-all” objection that the averments contained in the Disputed Amendments are “bound to fail”. With respect, I disagree. Bearing in mind there is a trial coming up soon, the less I say about this the better.

The Unopposed Amendments

37.  For the avoidance of doubt, leave is also granted to D to effect any and all unopposed amendments within the timeframe set out below.

Costs

38.  Ms Lydia Leung, counsel for D, sensibly agreed D shall have to pay costs. While I disagreed with some of the submissions made by Ms Mandy Yau, counsel for P, given the extreme lateness of the Summons (a month after the PTR), and how some of the proposed amendments were ill-conceived by D and thus disallowed by me, I agree with Ms Yau that this is a case for indemnity costs, and that such costs should, unlike the situation in Yip Wai Tak Vivian v Lee Ka Wo Esmond & 3 Others[2022] HKDC 621, also include the costs of today’s hearing. For the avoidance of doubt, while neither party had cited the well-known authorities on indemnity costs, such as Town Planning Board v Society for Protection of the Harbour Ltd (No 2) (2004) 7 HKCFAR 114 or Commissioner of Inland Revenue v Poon Cho Ming John (No 2) (2020) 23 HKCFAR 74 [2020] HKCFA 2 to me, I have always been aware of them, and I have fully considered them.

Disposition

39.  For the reasons above, the order which I do make today is:-

(1)  Leave be granted to D to amend its Defence and Counterclaim strictly in accordance with this decision, and to file and serve the signed version of the Amended Defence and Counterclaim at or before 4pm on Friday 2 June 2023;

(2)  Leave be granted to P to make consequential amendments to his Defence to Counterclaim, and to file and serve the signed version of the Amended Defence to Counterclaim at or before 4pm on Friday 9 June 2023;

(3)  P shall lodge and serve both hard and electronic copies of the updated trial bundles, his written opening, his list of authorities and his copies of authorities, at or before 4pm on Friday 16 June 2023;

(4)  D shall lodge and serve both hard and electronic copies of its written opening, list of authorities and copies of authorities, at or before 4pm on Wednesday 21 June 2023;

(5)  Costs of and occasioned by the Summons, inclusive of the hearing today, and all amendments, be paid by D to P in any event, to be taxed on full indemnity basis with certificate for counsel if not agreed;

(6)  P’s own costs shall be taxed in accordance with Legal Aid Regulations; and

(7)  The trial shall start on 27 June 2023 as scheduled.

Final Remarks

40.  I do thank both counsel for their most able assistance.

Ms Mandy Yau, instructed by Michelle Ip & Co, assigned by the Director of Legal Aid, for the plaintiff

Ms Lydia Leung, instructed by Lam & Lai, for the defendant

DCCJ 4198 & 5285/2019 (Consolidated)

[2022] HKDC 18

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 4198 & 5285 OF 2019

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BETWEEN

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DECISION

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Introduction

1.  On 14 April 2021, Master Maurice Lam, in hearing an application for consolidation under Order 4 rule 9 of the Rules of the District Court at a three-minute call-over hearing, made an order to have consolidated the present two actions, namely DCCJ 4198/2019 (“the 1^st Action”) and DCCJ 5285/2019 (“the 2^nd Action”). There was no adjourned hearing for arguments. At the end of the call-over hearing, the learned Master gave a usual order for costs that “costs of the consolidation application be costs in the cause of the consolidated action.”

2.  By the Notice of Appeal dated 28 April 2021, the defendant gave notice of its intention to appeal against the Master’s decision on costs and substitute it with a costs order that costs be to the defendant. Certificate for counsel is no longer an issue as the defendant would not insist on seeking the same. This is an appeal against the Master’s order as to costs only.

3.  This appeal came before me on 1 December 2021, and I now give my decision.

Legal principles

4.  In general, a judge in chambers will not allow an appeal from a master’s costs order unless it can be shown that the order made by the master was unreasonable or erred in law, or that the master either failed to take into account proper matters or took into account matters that should not have been taken into account (Hoddle v CCF Construction [1992] 2 All ER 550; Lessy SARL v Pacific Star Development Ltd [1996] 2 HKC 326; Paul Y-ITC Construction Ltd v Kin Shing Co Ltd [1999] 1 HKC 511; see also Hong Kong Civil Procedure 2022, para 58/1/6).

5.  As such, it is trite and accepted by the parties that this appeal on costs is not to be dealt with by way of an actual rehearing of the matter while it is an appeal from a decision of a master (Wealth Growth (HK) Investment Ltd v Si Bun Bun Carmen Co Ltd[2021] HKDC 1363).

Background

6.  In the 1^st Action taken out on 9 August 2019, the plaintiff claims against the defendant on a dishonoured cheque for HK$120,000. The cheque was dated 31 October 2013, and it was dishonoured upon presentation on even date. The Writ was issued shortly before the expiry of the limitation period.

7.  On 27 September 2019, the defendant filed its Defence and Counterclaim. The defendant alleged that there was a building contract made between the plaintiff and the defendant in 2012. Under the building contract, the plaintiff was the sub-contractor of the defendant and agreed to supply and apply a fire protective coating system in respect of a project. The defendant made several payments to the plaintiff and the plaintiff’s sub-contractors. Disputes arose as to the certificate provided by the plaintiff and the final account of the building contract, where charges and contra-charges were set out. The defendant claims that it is entitled to set-off and counterclaim against the plaintiff for overpayment.

8.  On the same day when the defendant filed the Defence and Counterclaim, the plaintiff commenced another action, namely the 2^nd Action, claiming a sum of HK$495,509.50 being outstanding payment owed by the defendant under the building contract. However, the Writ of the 2^nd Action was not served until almost one year later on 11 September 2020.

9.  On 8 November 2019, the plaintiff filed its Reply and Defence to Counterclaim in which the plaintiff alleged that the defendant still owed the outstanding payment of HK$495,509.50 after deducting the HK$120,000 dishonoured cheque.

10.  In the meantime, inspection of documents had been done and witness statements had been filed in the 1^st Action.

11.  On 30 December 2020, the plaintiff served the Statement of Claim of the 2^nd Action to the defendant, for the claim of the said outstanding payment of HK$495,509.50 as pleaded earlier in the Reply and Defence to Counterclaim of the 1^st Action.

12.  On 17 February 2020, the defendant filed its Defence and Counterclaim of the 2^nd Action, which repeated the same content of its Defence and Counterclaim filed in the 1^st Action.

13.  When it came to the first Case Management Conference of the 1^st Action on 29 October 2020, Master Rita So gave directions that the parties do take out all interlocutory applications but not limited to the related 2^nd Action on or before 30 January 2021.

14.  Neither party took the initiative to apply for consolidation before the deadline.

15.  In the second CMC of the 1^st Action on 26 February 2021, Master Maurice Lam extended the time for taking out interlocutory applications to 26 March 2021.

16.  By a Summons taken out on 9 March 2021, the defendant applied for consolidation of the two actions.

17.  On 14 April 2021, Master Maurice Lam heard the application. He granted the order for consolidation with consequential directions and made an order that costs be costs in the cause of the consolidated action.

18.  The learned Master gave reasons for his decision on costs as follows:-

“First of all, the normal costs order for a consolidation application is costs in the cause. …

Secondly, the consolidation application is not seriously opposed by the Plaintiff. …. [D’s counsel] informed me at the very beginning of the hearing that the Plaintiff had no objection to paragraphs 1 – 4 of the proposed directions [concerning the consolidation]. … [P’s counsel] confirmed that the Plaintiff had no objection to the consolidation of the two actions. [P’s counsel] however said that the Plaintiff’s solicitors insisted to have DCCJ 5285/2019 stayed. After pointing out to [P’s counsel] that his submission was misconceived (as, once two actions were to be consolidated, DCCJ 5285/2019 would be consolidated to be part of the consolidated action and could not be stayed separately), no further submission was made by [P’s counsel] in that respect.

Thirdly, the directions proposed by me after the recess were not seriously opposed by [D’s counsel]. …. I took a recess and came up with proposed directions concerning the consolidation of the actions, as well as the case management directions for the consolidated action, for counsel’s comments. It was proposed that the costs of the consolidation application be in the cause of the consolidated action. … [D’s counsel] made no substantive response after I questioned why I should depart from the usual costs order that the costs of consolidation be in the cause. He only repeated the Defendant’s request for costs of the consolidation application in its favour. …. Having considered the nature of the application and the parties’ respective stances, I could not see any particular reason why the normal costs order should be departed from. ….”

19.  In support of the proposition that the normal costs order for consolidation application is costs in the cause, the learned Master relied on Komal Patel & Ors v Chris Au & Ors (unreported, HCA 183/2014 & HCA 2063/2015, 14 January 2016), Big Island Construction (HK) Ltd v Wu Yi Development Co Ltd & Ors (unreported, HCA 1957/2005, HCA 2196/2005, HCA 886/2007 & HCA 714/2007, 10 April 2008), Lee Tak (or Tuck) Yan & Ors v The Prudential Enterprise Ltd & Ors (unreported, HCCW 594/1999, HCA 1240/2001, HCA 4225/2001, 19 August 2003).

Preliminary issue as to admission of new evidence

20.  Prior to hearing the substantive arguments, an issue arose as to whether the letters of correspondence produced and exhibited in the defendant’s Affirmation (the 2^nd Affirmation of Lee) filed in support of the appeal were admissible. Counsel for the plaintiff submitted that they are not.

21.  Those were the letters exchanged between the parties’ respective solicitors on 11 February 2021 (before taking out of the Summons for consolidation) and between 12 and 13 April 2021 (before the three-minute call-over hearing of the application) as to whether the two actions should be consolidated. According to Ms Lan (counsel appearing in this appeal but not below for the defendant), those letters would show how the defendant had proposed the consolidation versus how the plaintiff unreasonably insisted on a stay of the 2^nd Action pending the final determination of the 1^st Action, while agreeing to consolidation.

22.  I have considered the further evidence de bene esse, and I found that those correspondences were, in broad terms, no more than repeating what the defendant suggested in their Schedule of Proposed Directions annexed to the Summons and the parties’ respective positions as stated in their affirmations filed in respect of the application.

23.  Under RDC O 58 r 1(4), no further evidence, other than evidence as to matters which have occurred after the date on which the judgment, order or decision was given or made, may be received on the hearing of an appeal under RDC O 58 except on special grounds.

24.  The phase “special grounds” is the same expression as in RHC O 59, r 10(2) and requires the conditions laid down in Ladd v Marshall [1954] 1 WLR 1489 to be satisfied (Fortis Insurance Company (Asia) Limited v Lam Hau Wah Inneo, unreported, HCA 1840/2009, 30 March 2010, per Fok J, as he then was). The Ladd v Marshall conditions, as stated by Denning LJ (as he then was) at p 1491, are as follows:-

“To justify the reception of fresh evidence or a new trial, three conditions must be fulfilled: first, it must be shown that the evidence could not have been obtained with reasonable diligence for use at the trial; secondly, the evidence must be such that, if given, it would probably have an important influence on the result of the case, though it need not be decisive; thirdly, the evidence must be such as is presumably to be believed, or in other words, it must be apparently credible, though it need not be incontrovertible.”

25.  The above principles are not in dispute by the parties. However, Ms Lan relied on Langdale v Danby [1982] 1 WLR 1123 and submitted that the conditions should require some modification to adopt a more relaxed approach. I disagree. Langdale v Danby was a case related to the situation arising on an appeal from a summary judgment, where the standard of diligence required of the defendant in preparing his case in opposing to a summons for summary judgment might not be that high as that required in preparing for trial, due to the constraints of time. Accordingly, I refuse to extend such modification to the conditions in our present case.

26.  Apparently, those correspondences were readily available before the Master either before or at the hearing and are evidence which could previously have been obtained with reasonable due diligence, but the defendant chose not to produce or did not pay heed in preparing to produce them. I find that the first condition laid down in Ladd v Marshall is not satisfied.

27.  Further, for the reason I have given above, I do not consider that the further evidence, if accepted, would probably have an important influence on the result of the case (ie the Master’s decision on costs), though it need not be decisive. Therefore, I also find that the second condition in Ladd v Marshall is not satisfied.

28.  I would also adopt the observation made by DHCJ Au-Yeung (as she then was) in Bank of China (Hong Kong) Ltd v Certain Aim Ltd (unreported, HCMP 1272/2007, 4 October 2010), at para 17:-

“Order 58 rule 1(5) [RDC O 58 r 1(4)] was introduced to curb the undesirable practice before the Civil Justice Reform when parties sought to adduce a further round(s) of evidence on appeal after an unfavourable decision from a Master. Rule 1(5) aims at effecting a change of culture so that parties should prepare their application properly at the earliest possible opportunity and lay all cards on the table prior to the hearing before a Master. The spirit of this rule will be defeated if a party is allowed to revert to the pre-CJR practice.”

29.  Thus, in my decision, I hold that the further evidence is inadmissible, a fortiori in the instant appeal against the Master’s order as to costs.

The Appeal

30.  Ms Lan submits that the learned Master had erred in the exercise of his discretion in ordering the costs to be in the cause as it was plainly wrong for the Master to have taken the view that the application was “not seriously opposed” by the plaintiff, and thus the order he made was unreasonable. Counsel’s argument is basically two-fold: (1) there was a persistent failure on the part of the plaintiff to consolidate the two actions, and (2) the plaintiff had actually opposed the application for consolidation by insisting on a stay of the 2^nd Action.

31.  The first part of Ms Lan’s argument can be dealt with very quickly. She said that it was the plaintiff’s fault in not bringing its claim in one action in the first place (eg by amending the Statement of Claim of the 1^st Action), and that it should be the plaintiff who was under a duty to apply to consolidate its two actions.

32.  In my view, it is not for this Court to ascertain the reason why the plaintiff had started the two actions separately. If that question is relevant, it should have been heard by the Master when dealing with the application for consolidation. All shall be noted is that the 1^st Action was a simple and straightforward claim on a dishonoured cheque in the sum of HK$120,000, whereas the claim in the 2^nd Action was a more complicated one for a final account between the parties. As it turned out that the two actions involved common issues and common parties, it hence gave rise to the question of consolidation. I would say no more than that. As to the question of whether the plaintiff should be the party to take out the application for consolidation, I would point out that the defendant has made counterclaims in the two actions as well. The two Counterclaims were also identical. As such, the defendant also had the burden to apply for consolidation, and such burden is no less to the plaintiff’s. Thus, I see no merit in this part of the defendant’s complaint.

33.  The second part of Ms Lan’s argument does require more consideration. It is submitted that the fact that the plaintiff did not agree to the defendant’s proposed directions and insisted on having a stay of the 2^nd Action meant the plaintiff effectively opposed the defendant’s application for consolidation. As the Master had found against a stay and granted order in terms of most of the defendant’s proposed directions, Ms Lan further submits that the defendant was the “winning party” in so far as the Summons for consolidation is concerned and should be entitled to costs to reflect the costs unnecessarily incurred or caused by the plaintiff.

34.  In support of her contention, Ms Lan relies heavily on the case Man Fong Hang v Man Ping Nam & Ors (unreported, HCA 7935/1998, 26 September 2002), per DHCJ A Cheung (as the Chief Justice then was), at para 17:-

“17. In my judgment, the Court is entitled to exercise afresh the discretion on costs in the present case. First, in this type of contested applications, there are two sets of costs to be considered, i.e. the costs of and occasioned by the application for leave itself (including, for all practical purposes, the costs of the three-minute call-over hearing), and the costs of the (substantive) hearing before the master. The same distinction has been drawn by Yam J in Lessy SARL (supra) concerning an application for leave to amend. In that case, the learned Judge said (at p. 327B - G) as follows:

‘It is accepted by both sides that in the usual order in an application to amend, when the application was resisted, there should be two sets of costs, namely:

(a) costs of and occasioned by the amendment shall be to the other side, and in this case the plaintiffs, in any event; but

(b) costs of the hearing before the tribunal shall be to the party who is successful in the argument, and in this case the defendants, who were successful in obtaining leave to amend.

…

The rationale behind in differentiating these two sets of costs is not to encourage the other side who has decided to resist an application to amend to have a try-on. Otherwise the resisting party would be under an impression that, win or lose, they will get their costs anyway. The resisting party should be deterred to adopt such an attitude. In deciding to resist the amendment, they should know that in the event they have lost the argument, they would be ordered to pay the cost of the argument and that is the costs of the hearing whilst the first set of costs (ie the costs of and occasioned by the amendment), would be to them in any event.’”

35.  Mr Ng, counsel appearing for the plaintiff in this appeal but had not appeared below, submits that Man Fong Hang is distinguishable because:-

(1) Man Fong Hang was a case about an application to adduce further expert evidence. The learned judge adopted the two sets of costs rule as applicable for application to amend pleadings in Lessy SARL. Whereas our present case is a case management decision, there is no winner or loser and there was no “true fight” between the parties; therefore, the two sets of costs rule should not apply.

(2) Mang Fong Hang was a case in which the application was hotly contested, and there was a substantive hearing for arguments. The learned judge drew the line in differentiating the costs of the application leading up to and including the call-over hearing and the costs of the substantive hearing. Whereas it was only a non-contested call-over hearing in our present case, there should not be any two sets of costs.

(3) The learned judge in Man Fong Hang was entitled to exercise the discretion afresh was because the master in that case did not consider the two sets of costs rule in the particular application, and that was an error in law. Whereas in our present case the learned Master had not erred in law.

36.  Ms Lan confirms to the Court that she is not trying to suggest that the Court should apply the two sets of costs rule to a three-minute call-over hearing for an application for consolidation. Her stance is that the learned Master should have at least disallowed some part of the costs and should not have ordered the normal costs order.

37.  I agree with Mr Ng’s submissions. But I also find that the rationale elucidated in Lessy SARL(supra) that “not to encourage the other side to have a try-on” still holds true as a matter of principle. I do not see that the court is prohibited from applying the same principle to a three-minute call-over hearing. If one party considers that the other party’s conduct was not reasonable, leading to additional costs being incurred, they can, of course, draw the court’s attention to those features and ask for a whole or part of the costs in their favour. However, it should be borne in mind that due to the practical nature of a call-over hearing was not intended for arguments, the party who wanted to seek costs must be well prepared to persuade the court to depart from any usual costs order. It all goes back to the basic principle that costs are in the discretion of the court.

The affidavit evidence

38.  Counsel for the defendant then refers the court to several paragraphs in the plaintiff’s Affirmation, which stated, in particular in paragraph 2, that the plaintiff was “in support” of the defendant’s application to consolidate the two actions “subject to the 2^nd Action be stayed until after the determination of the 1^st Action”. She submits that the plaintiff clearly opposed the consolidation by making such an assertion.

39.  In my opinion, however, if one reads the plaintiff’s Affirmation as a whole, it appears that it was not the consolidation of the two actions that the plaintiff disagreed with. What the the plaintiff disagreed with the defendant was the “consolidated pleadings” suggested by the defendant in their proposed directions, and the plaintiff considered it was inappropriate. It can also be seen from paragraphs 1 – 4 of both of the plaintiff’s and the defendant’s proposed directions that they both agreed to have consolidation. The plaintiff only opposed to the defendant’s seeking of consolidated pleadings (paras 4 – 6 of the D’s proposed directions) and instead, in order to save costs and time, they would rather have a stay of the 2^nd Action (para 6 of P’s proposed directions) and proceed with what was already ready in the 1^st Action, namely, the filed pleadings, witness statements, Lists of Documents, etc. The plaintiff asserted in the Affirmation that the main reason for having a stay of the 2^nd Action was that the 1^st Action was in a more advanced stage and ready to be set down for trial, whereas the 2^nd Action was only up to the close of pleadings.

40.  There is no doubt that the plaintiff had misconceived in asking for a stay of the 2^nd Action while in support of the consolidation of the two actions. I also agree with Ms Lan that the plaintiff’s Affirmation was not well drafted and thus leading to the convoluted suggestion of consolidation with a stay. However, in my view, the fact that the plaintiff had misconceived as to consolidation or stay does not necessarily mean that the application was unreasonably opposed. As it is rightly pointed out by Mr Ng, a stay is one of the alternatives (or modes) available under O 4 r 9(1) for the court’s consideration, and there was no winner or loser in a case management decision. I agree with Mr Ng, adding that so long as the matter was not unreasonably opposed. And I find there was none here.

41.  In my view, the Master was fully entitled to conclude that the application was not seriously opposed.

Statement of Costs

42.  Ms Lan further submits that the parties had filed their Statement of Costs and asked for a summary assessment at the hearing below. It is said that the Master must have appreciated there was resistance in the application upon reading the plaintiff’s Affirmation, but had overlooked, as shown in the Statements of Costs, there were “not insubstantial” amount of costs (ie HK$54,000 for the plaintiff and HK$26,000 for the defendant) being incurred as a result of the plaintiff’s resistance.

43.  I am unable to accept Ms Lan’s submissions in this respect. First, a summary assessment would not be done on the Statement of Costs unless and until the party has obtained a costs order in its favour. Secondly, the amount of legal costs incurred was not explained to the Master and certainly had not been assessed by the Master. The costs stated therein might or might not be justified. If the counsel at the hearing below did not make any submission to persuade the Master to depart from the usual order, I do not think it is open to the counsel at the appeal to take that point afresh. This appeal on costs is not an actual rehearing.

Part of case management

44.  The hearing before the Master for the consolidation application is one of case management in nature. The issues in question, namely whether to consolidate or to stay proceedings, are essentially case management matters under O 4 r 9(1). The Master must have decided on balance that the matters in dispute were still part of the case management of the two proceedings.

45.  In my view, it is quite obvious that the difficulty the defendant encountered here is not whether the Master had failed to take into account any additional costs incurred due to the plaintiff’s misconception. Instead, the crux of the problem is that the defendant’s counsel below failed or chose not to address the court for any reason, if any, why the court should depart from the usual costs order.

46.  In such circumstances, I can find no error of law in the Master’s decision, nor can I see the order he made was unreasonable. As stated in his Decision on Costs, the Master had considered the nature of the application and the respective stances of the parties. In the exercise of his discretion, the Master did not think it right to make any costs order that departed from the usual order. I see no reason to interfere with the costs order made by the Master. I would dismiss the appeal.

Usual costs order for consolidation

47.  As to the question posed by this Court that whether the parties accept that the usual costs order for an application for consolidation is “costs in the cause”, Mr Ng submits that it is the usual order whether or not the application was contested. Ms Lan submits that it is the usual order only for uncontested applications. With respect, I am not satisfied with either answer.

48.  Ms Lan submits that since the learned Master rejected the plaintiff’s suggestion to stay, there is no reason why the defendant as a winning party should not be entitled to recover costs unnecessarily incurred. She said for contested applications, costs should follow the event. In support, she cited the case of Bank of East Asia Ltd v Yeung Lam Wilson & Ors (unreported, HCMP 4077 of 1998, 27 October 1999).

49.  Mr Ng replies that Bank of East Asia Ltd is a pre-CJR authority. In the pre-CJR era, there was no distinction between costs in interlocutory proceedings and costs in other proceedings. The former O 62 r 3(2) prescribed a general rule that costs to follow the event except in special circumstances. However, the court’s approach post-CJR has changed that costs following the event except in special circumstances remains only as one of the options, and the court is no longer required to apply that general rule of costs in interlocutory proceedings. (see Waxman & Anor v Li Fei Yu & Anor [2013] 6 HKC 424 per To J at paras 11 & 19).

50.  In addition, Mr Ng refers to the case of K&L Gates v Navin Kumar Aggarwal & Others (unreported, HCA 1061/2011 & HCA 349/2012, 15 July 2013). In that case, the plaintiff opposed the application for consolidation filed by one of the defendants. The main reason put forward by the plaintiff’s counsel was that, though the plaintiff agreed in principle for consolidation, the second action was at a more advanced stage and consolidation with the first action at this stage would cause undue delay to the second action. DHCJ B Chu (as she then was) made an order for consolidation in terms of the defendant’s summonses. The defendant asked for costs. DHCJ B Chu declined such request and said, at para 32, “as the matter was really part of case management, costs were to be in the cause.”

51.  I agree with Mr Ng that K&L Gates supports the proposition that costs should be costs in the cause if the matter is part of case management. And indeed, I find the situation of our present case is quite similar to K&L Gates, and that proposition is also applicable to our present case.

52.  Mr Ng further submits that there is a wide spectrum of cases in support of his proposition that the usual order for costs for a consolidation application is “costs in the cause”, even in hotly contested applications. He refers to, for example, the case authorities relied on by the learned Master at the hearing below, namely Komal Patel & Ors v Chris Au & Ors (supra), etc. Nevertheless, Mr Ng properly accepts that the usual order for costs would still apply only if the contest to the application were not too far-fetched or over-reached.

53.  In my judgment, “costs in the cause” is the usual order for an application for consolidation. Whether the court is going to order the usual order would depend. The decisive issues are (1) whether the application is opposed or unreasonably opposed, and more importantly, (2) whether the matters considered in the application are essentially part of case management of the proceedings. The court will depart from the usual order if the application is unreasonably opposed or the matters fall outside the ambit of case management. Of course, there are other reasons that would justify the court doing the same, such as an application which is an abuse of the process of the court. In any event, costs are in the discretion of the court (s 53(1) of the District Court Ordinance, Cap 336).

54.  As to the question why costs of case management matters would be costs in the cause? I would draw counsel’s attention to Man Fong Hang (supra) per DHCJ A Cheung (as the Chief Justice then was) at para 20:-

“… be costs in the cause. This is because … the application is more in the nature of a direction application, i.e. an application for a direction to facilitate further prosecution of the claim or conduct of the defence, and/or proper conduct of the eventual trial. There is not much ‘right’ or ‘wrong’ in the application itself, and the underlying ‘merits’ of the application are really determined by the general merits of a party’s case. Therefore, it would be generally fair in those circumstances to order the costs to be in the cause.”

55.  For the literal meaning of “costs in the cause”, I would respectfully refer to the judgment of Cross LJ (as Lord Cross then was) in J T Stratford & Son Ltd v Lindley (No 2) [1969] 1 WLR 1547 at 1555F, where his Lordship said, “the words ‘costs in cause’ only mean that the costs in question are to be dealt with as part of the general costs of the action.”

Disposition and Costs

56.  For the above reasons, I dismiss the defendant’s appeal.

57.  I make an order nisi that the defendant do pay the plaintiff’s costs of the appeal, and such costs to be summarily assessed with certificate for counsel. The plaintiff’s own costs to be taxed in accordance with the Legal Aid Regulations. In absence of any application for variation, this costs order shall be made absolute in 14 days from the date hereof.

58.  Unless any application for variation of the said costs order nisi is made within time, the plaintiff shall lodge and serve its statement of costs within 7 days after the expiry of the said 14-day period, and the defendant shall lodge and serve its statement of objection within 7 days thereafter. Summary assessment of costs of the appeal will then be conducted on paper (no matter whether any statement of objection is lodged by the defendant within time) thereafter. The costs assessed shall be payable by the defendant within 14 days after assessment.

59.  Finally, it remains for me to thank counsel for their assistance.

Mr Alan M S Ng, instructed by Michelle Ip & Co, assigned by the Director of Legal Aid, for the plaintiff

Ms Gekko Lan, instructed by Lam & Lai, for the defendant