CHINA CITIC BANK INTERNATIONAL LTD formerly known as CITIC BANK INTERNATIONAL formerly known as CITIC KA WAH BANK LTD v. LI YAN HUNG AND OTHERS

HCMP 2208/2019

[2024] HKCFI 1410

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 2208 OF 2019

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D E C I S I O N

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A. INTRODUCTION

1.  This is the hearing of:

(1)  the plaintiff’s application by Summons dated 30 November 2023 for leave to appeal against the Judgment of this court dated 17 November 2023 (“Judgment”) on the proposed grounds of appeal set out in the draft Notice of Appeal annexed thereto (“Draft NOA”); and

(2)  the plaintiff’s application by Summons dated 19 December 2023 to amend the Draft NOA as per the draft annexed thereto (“Amended Draft NOA”).

2.  The factual background of the case is summarised at §§7-11 of the Judgment.  In gist:

(1)  In the main action between the plaintiff and the defendants (“Main Action”), the plaintiff seeks to enforce a mortgage dated 16 October 2009 over a property registered in the 1^st defendant’s name (“Mortgage”) upon the 2^nd defendant’s default in repaying its secured indebtedness.

(2)  The 1^st defendant counterclaims for various reliefs on the purported basis that inter alia: (i) her son (“Son”) has a beneficial interest in the mortgaged property under a declaration of trust (“DT”) which binds the plaintiff and takes priority over the Mortgage; and (ii) the Mortgage should be set aside/rescinded by reason of non est factum, misrepresentation and/or undue influence.  It is important to note that the 1^st defendant’s counterclaim is mounted on two different bases: the first of which is on the premise that the Mortgage is valid, but the Son’s interest under the DT takes priority over the Mortgage.

(3)  By Summons dated 25 October 2022 (as amended on 10 March 2023), the plaintiff applied for retrospective leave to issue a Third Party Notice dated 17 February 2023 against the 2^nd third party (the “Firm”) (“TPN”) to seek an indemnity and damages on the purported basis that (i) the Firm prepared the DT for the 1^st defendant’s execution (“DT Claim”); and (ii) the 1^st defendant is able to vitiate the Mortgage in the Main Action for reasons attributable to the Firm (“Li Claim”). 

3.  By the Judgment, leave to issue the TPN was refused on the basis that (i) the DT Claim is “wholly unarguable for want of loss” (at §37); and (ii) the Li Claim is “frivolous and bound to fail” (at §44).  On any view, this was a determination of the substantive merits of the plaintiff’s intended third party claims against the Firm (“TP Claims”), and the intended third party proceedings have been wholly concluded as a result of the Judgment. 

4.  In summary, the Firm contends that leave to appeal should be refused on the basis that (i) no such leave is in fact required and this court has no jurisdiction to grant the same (see Section B below); (ii) in any event, the intended appeal has no reasonable prospect of success and is plainly unarguable (see Section C below) and there is no other reason in the interests of justice why the appeal should be heard (see Section D below).

B.  LEAVE TO APPEAL IS NOT REQUIRED

5.  Section 14(1) of the High Court Ordinance, Cap 4 (“HCO”) provides that, subject to sub-section 3 and section 14AA, an appeal shall lie as of right to the Court of Appeal from every judgment or order of the Court of First Instance in any civil cause or matter.

6.  Section 14AA(1) of the HCO makes general provisions that, except as provided by rules of court, no appeal lies to the Court of Appeal from an interlocutory judgment or order of the Court of First Instance in any civil cause or matter unless leave to appeal has been granted.

7.  Section 14AA(2) of the HCO then provides that rules of court may specify a judgment or order of any prescribed description to which section 14AA(1) does not apply and that accordingly an appeal lies as of right from the judgment or order. 

8.  Such exceptions are contained in Order 59, rule 21 of the Rules of the High Court (“RHC”).  Relevantly, rule 21(1)(a) provides that an appeal lies as of right for any “judgment or order determining in a summary way the substantive rights of a party to an action”.

9.  Order 59, rule 21(2) then sets out (non-exhaustively) a number of specific types of judgments or orders which fall within this category, such as (i) “an order striking out an action or other proceedings or a pleading or any part of the pleading under Order 18, rule 19 or under the inherent jurisdiction of the Court” (sub-paragraph (b)); and (ii) “an order dismissing or striking out an action or other proceedings for want of prosecution” (sub-paragraph (f)).

10.  In applying the provisions above, the following principles are applicable:

(1)  Whether an order is an interlocutory one within the meaning of section 14AA(1) of the HCO is a separate question from whether it falls within RHC Order 59, rule 21.  It is envisaged that there may be orders which are interlocutory and therefore prima facie require leave to appeal but which fall within rule 21 and may therefore be appealed as of right: Securities and Futures Commission v Lu Ruifeng[2022] 1 HKLRD 1349 at §31 (G Lam JA).

(2)  Whether an order falls within RHC Order 59, rule 21(1)(a) turns on what the order actually determines, rather than its collateral practical effect.  Cases where there is no decision on any issue of substantive merit between the parties do not fall within the rule, even if the effect of the decision may well spell the end of the proceedings in question: Lu Ruifeng (Ibid) at §33.

(3)  Only judgments or orders which by themselves deal with the substantive rights of a party fall within the ambit of RHC Order 59, rule 21(1)(a): Lo King Yeung v Eddie Chu Hoi Dick [2017] 4 HKLRD 723 at §§13-14 (Au J, as he then was).

(4)  The court has no jurisdiction to grant leave to appeal where no such leave is in fact required: Montgomery v Chung Cheuk Hung Hero [2018] 5 HKLRD 158 at §14 (Chow J, as he then was); Excel Concrete Ltd v The Concrete Producers Association of Hong Kong Ltd, HCA 938/2011 (unrep, 27/09/2013) at §20 (DHCJ Marlene Ng, as she then was).  This is plainly not a “tactical” stance as the matter goes to this court’s jurisdiction. 

11.  In the present case, I agree with the Firm that no leave is required to appeal against the Judgment as it is one which by itself determined the substantive rights between the plaintiff and the Firm, and is therefore appealable as of right under RHC Order 59, rule 21(1)(a):

(1)  The Judgment determined the substantive merits of the TP Claims by finding that: (i) the DT Claim is “wholly unarguable for want of loss” (at §37); and (ii) the Li Claim is “without substantial foundation and incapable of proof” and “frivolous and bound to fail” (at §44).  These are clearly findings that will give rise to Res Judicata as between the Firm and the plaintiff as to the matters necessarily determined, and the conclusions on these matters cannot be challenged in subsequent litigation between them (whether in separate proceedings or at a later stage of the same proceedings).

(2)  Further, the effect of the Judgment (and the Order dated 17 November 2023 at §2) is tantamount to a dismissal of the TP Claims (in that this court determined they are unarguable and should not be allowed to be made) and must therefore have determined the parties’ substantive rights.

(3)  The matter may also be tested this way.  If the plaintiff had issued the TPN before it served its Defence to the 1^st defendant’s Counterclaim, it would have been able to do so without leave under RHC Order 16, rule 2 and the Firm would have applied to strike out the TPN (as it did with the 1^st defendant’s Third Party Notice: Judgment at §4), rather than to oppose leave for issuance of the TPN.  This court would have struck out the TPN for the reasons stated in the Judgment, and this strike-out order would have been appealable as of right under RHC Order 59, rule 21(2)(b).  It must follow that the Judgment is also appealable as of right, for it will be illogical if leave to appeal is required when the TPN was issued after the plaintiff’s Defence to the 1^st defendant’s Counterclaim and retrospective leave was applied for and refused by the court (ie the present case), but not so when the TPN was issued before then, and subsequently struck out by the court.  The difference in timing cannot possibly affect the substance and effect of the court’s decision, which involves a determination of substantive rights under RHC Order 59, rule 21(1)(a).

12.  The plaintiff contends that the Judgment does not fall within RHC Order 59, rule 21(1)(a) by reason that the Judgment is interlocutory.  This is however beside the point.  As held in Lu Ruifeng (Supra) , a judgment or order may be interlocutory but nevertheless fall within RHC Order 59, rule 21 and thus appealable as of right: see paragraph 10(1) above. 

13.  Similarly, the plaintiff’s reliance on the “application test” is misplaced: the “application test” determines whether a judgment is final or interlocutory for the purpose of section 14AA(1) of the HCO and bears no relevance to the operation of RHC Order 59, rule 21(1)(a), which is applicable even to interlocutory judgments. 

14.  In the premises, I hold that this court has no jurisdiction to grant leave to appeal in respect of the Judgment, and the plaintiff’s applications fall to be dismissed in limine.

C.  THE INTENDED APPEAL HAS NO REASONABLE PROSPECT OF SUCCESS AND IS PLAINLY UNARGUABLE

15.  Apart from the fact that the plaintiff’s applications should be dismissed for want of jurisdiction alone, none of the proposed grounds of appeal in the Amended Draft NOA are reasonably arguable and the plaintiff’s applications should be dismissed on this additional basis.  

16.  The court’s approach is summarised as follows:

(1)  For leave to appeal to be granted, the court must be satisfied that the intended appeal has a reasonable prospect of success (or that there is some other reason in the interests of the justice that the appeal should be heard): Hong Kong Civil Procedure 2024, Practice Note 59/2A/4.

(2)  The grant or refusal of leave to issue a third party notice is an exercise of the court’s discretion: Hong Kong Civil Procedure 2024, Practice Note 16/2/5.  No appeal would be entertained unless it can be shown that (i) the judge exercised his discretion under a mistake of law or in disregard of principle or under a misapprehension as to the facts; or (ii) that he took into account irrelevant matters or failed to exercise his discretion, or the conclusion which the judge reached in the exercise of his discretion was “outside the generous ambit within which a reasonable disagreement is possible”: Hong Kong Civil Procedure 2024, Practice Note 59/0/54. 

(3)  The exercise of discretion must be plainly wrong and it is insufficient that the appellate court would prefer a solution which the judge had not chosen: Hong Kong Civil Procedure 2024, Practice Note 59/2A/4.

17.  In the Judgment, this court held that the DT Claim is “wholly unarguable for want of loss” in that: (i) the Mortgage incontrovertibly has priority over the DT under section 3(2) of the Land Registration Ordinance, Cap 128; and (ii) accordingly, the plaintiff is not bound by the Son’s alleged beneficial interest under the DT: at §§32-37.

18.  On the plaintiff’s case, this court allegedly “erred in failing to consider properly the DT in its proper context”: Amended Draft NOA at §1.  The plaintiff asserts that its claim was not based on “the loss of priority of the Mortgage vis-à-vis the DT” but rather “its possible loss of security, in that the Mortgage might be set aside on the basis of [the 1^st defendant’s] plea that the Mortgage had not been properly explained to her in the context of the whole transaction”: Amended Draft NOA at §1(b).

19.  This assertion is baseless and not reasonably arguable:

(1)  First, the DT Claim (as argued by the plaintiff at the 11 September 2023 hearing before this court) is clearly based upon “the loss of priority of the Mortgage vis-à-vis the DT”, as opposed to the Mortgage being set aside.  Contrary to §1(d) of the Amended Draft NOA, this court did not misunderstand the plaintiff’s case at all:

(a)  This is clear from the plaintiff’s submissions to this court: (i) in response to the Firm’s contention that the DT Claim is hopeless by reason that the Mortgage had priority over the DT, the plaintiff did not argue that the Firm misunderstood its case; (ii)instead, the plaintiff sought to contend that the plaintiff would be bound by the DT if it was found at trial that the plaintiff acted mala fide,^[1] which could not have been relevant if the DT Claim were premised upon the Mortgage being set aside (as the plaintiff now contends).

(b)  It is also plain from the TPN that the DT Claim is based on the DT having priority over the Mortgage: (i) the TPN specifically refers to the 1^st defendant’s counterclaim against the plaintiff for a declaration that the plaintiff’s rights under the Mortgage were subject to the Son’s alleged beneficial interest (§(ii) on p.2); (ii) the TPN then purports to claim an indemnity or damages “in the eventany of the declarative relief claimed by [the 1^st defendant] is granted” (§(i) on p.3); and (iii) importantly, the TPN pleads two different bases for such claim, one of which is the DT being executed in breach of the Firm’s duty to the plaintiff (§5 on p.4), and the other of which is the 1^st defendant’s case for setting aside the Mortgage being established (§6 on p.5).

(c)  Clearly, as correctly understood by this court, the TPN pleads two separate and distinct claims against the Firm: (i) one based on the execution of the DT and on the Mortgage being subject to the same (ie the DT Claim); and (ii) the other based on the setting aside of the Mortgage (ie the Li Claim).  The plaintiff’s attempt to recast its case by conflating the two is wholly without merit.

(2)  For completeness, the plaintiff’s assertion that “the crux of [the 1^st defendant’s] case was [a] total loss of priority in relation to the DT” is plainly wrong: Amended Draft NOA at §1(c).  The 1^st defendant’s case is that the plaintiff is bound by the DT and that the DT has priority over the Mortgage: 1^st defendant’s Defence and Counterclaim §33 and Prayer (1).

20.  In the premises, there is no reasonably arguable appeal in relation to the DT Claim.

21.  In paragraph 16 of the plaintiff’s Skeleton Submissions, the plaintiff refers to §9 of the 1^st defendant’s Defence.

22.  With reference to §9 of the 1^st defendant’s Defence, in paragraph 17 of the plaintiff’s Skeleton Submissions, the plaintiff complains that: “Whilst the Learned Judge went on to find that the black letter terms of the Mortgage were in fact explained to (and understood by) [the 1^st defendant], he failed to consider the crux of [the 1^st defendant]’s complaint that the Firm did not explain to her the interplay between the Mortgage and the DT”. (Emphasis supplied)

23.  At paragraph 19 of the plaintiff’s Skeleton Submissions, the plaintiff submits that on this basis the 1^st defendant’s “non est factum claim stands a more than reasonable chance of success. …”

24.  And at paragraph 23 of the plaintiff’s Skeleton Submissions, the plaintiff submits that: “In light of the foregoing, the [plaintiff] has clearly demonstrated that (i) when viewed against the undisputed evidence, [the 1^st defendant]’s claims in particular that of non est factum are not frivolous and bound to fail; and (ii) hence, the [plaintiff]’s appeal has a reasonable prospect of success”.

25.  With respect, the plaintiff’s submissions involve a misunderstanding of the case pleaded by the 1^st defendant.

26.  In §7 of her Defence, the 1^st defendant pleads that: “By reason of the matters pleaded in paragraphs 4 to 5 above, the 1^st Defendant relies on the doctrine of non est factum on the grounds set out above.”

27.  Two consequences follow from this.  First, the subsequent matters pleaded at §9 of the 1^st defendant’s Defence is not relevant to the 1^st defendant’s plea of non est factum.

28.  Second, at §5(d) and (e) of her Defence, the 1^st defendant pleads as follows:

“(d) In reliance on and induced by the Misrepresentation, the 1^st Defendant signed all the documents produced to her by the staff of the Firm, including inter alia the Mortgage, who did not explain to her the contents, nature or effect of the documents which were all in English and was not understood by the 1^st Defendant.

(e) Without knowledge as to the nature, content and effect of the Mortgage and the 24 August 2009 Facility Letter, the 1^st Defendant signed thereon.” (Emphasis supplied)

29.  This is a classic plea of non est factum, where a defendant complains that the transaction which the document (ie the Mortgage) purports to effect is essentially different in substance or in kind from the transaction intended.  This is not a complaint of insufficient explanation to the 1^st defendant of “the interplay between the Mortgage and the DT”.

30.  In the Judgment, this court held that the Li Claim is “frivolous and bound to fail” because: (i) the Li Claim is premised upon the 1^st defendant’s assertion that she did not understand the nature, content and effect of the Mortgage at the time of its execution (“Premise”); and (ii) the Premise is “without substantial foundation and incapable of proof” in light of the totality of evidence: at §§38-45.

31.  There is no misunderstanding on the part of this court.  The above findings dealt with the 1^st defendant’s case on non est factum as pleaded in her Defence.

32.  In particular, this court found that: (i) the Premise is contradicted by contemporaneous evidence which shows that the 1^st defendant knew full well the nature and effect of the Mortgage, namely the Confirmation Letter (at §41 of the Judgment); (ii) the Premise is further destroyed by the 1^st defendant’s own evidence that she discovered the nature of the relevant documents in November 2014 but made no complaints and took no actions until December 2020 (at §42); and (iii) the 1^st defendant has given incontrovertibly false evidence on the issue (at §43).

33.  Finally, I note that not all of the proposed grounds of appeal set out in the Amended Draft NOA have been addressed/pursued in the plaintiff’s Skeleton Submissions.  In any event, in my view, the Firm has provided sufficient responses thereto in §§24-30 of its Skeleton Submissions.

D.  NO OTHER REASON IN THE INTERESTS OF JUSTICE WARRANTING THE GRANT OF LEAVE TO APPEAL

34.  In paragraph 23 of the plaintiff’s Skeleton Submissions, the plaintiff submits that in the overall interest of justice and/or to avoid multiplicity of proceedings and inconsistent findings, leave to appeal should be granted.

35.  I do not agree.  The need to avoid multiplicity of proceedings and inconsistent findings cannot constitute a sufficient reason for leave to appeal to be granted where (i) this court has concluded that the TP Claims are bound to fail and the intended appeal has no reasonable prospect of success; and (ii) in such circumstances, it cannot be in the interests of justice to allow the plaintiff to pursue proceedings against the Firm which are unarguable: §§37 and 44 of the Judgment.

E.  CONCLUSION

36.  For the reasons set out above, the plaintiff’s applications under the Summonses referred to at paragraph 1 above are dismissed with costs, with certificate for 2 counsel, to be taxed if not agreed and paid forthwith.

37.  The above order as to costs is nisi and shall become absolute in the absence of any application within 14 days to vary the same.

38.  Lastly, I express my gratitude to counsel on both sides for their helpful assistance in this matter.

HCMP 2208/2019

[2023] HKCFI 2978

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 2208 OF 2019

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________________________

________________________

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J U D G M E N T

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A.  INTRODUCTION

1.  This is the appeal by the 2^nd third party, Messrs George Y C Mok & Co (the “Firm”) by way of its Notice of Appeal dated 23 March 2023 (as amended at the hearing) against the Order of Master KW Wong (“Master”) dated 10 March 2023 (as amended) (“Order”), allowing the plaintiff’s application by its Summons dated 25 October 2022 (as amended on 10 March 2023) (“P’s Summons”) for retrospective leave to issue a Third Party Notice dated 17 February 2023 against the Firm (“TPN”) in respect of the 1^st defendant’s counterclaim.

2.  In the main action between the plaintiff and the defendants (“Main Action”): (i) the plaintiff seeks to enforce a mortgage dated 16 October 2009 over the Property registered in the 1^st defendant’s name (the “Mortgage”) upon the 2^nd defendant’s default in repaying its secured indebtedness; and (ii) the 1^st defendant counterclaims for various reliefs on the purported basis that (inter alia) her son (“Son”) has a beneficial interest in the mortgaged property under a Declaration of Trust (“DT”) which binds the plaintiff, and that the Mortgage should be set aside/rescinded by reason of non est factum, misrepresentation and/or undue influence.

3.  By the intended third party proceedings, the plaintiff seeks an indemnity and damages against the Firm on the purported basis that the Firm breached its contractual/tortious duty of care owed to the plaintiff insofar as: (i) the Firm prepared the DT for the 1^st defendant’s execution (“DT Claim”); and (ii) the 1^st defendant is able to vitiate the Mortgage in the Main Action for reasons attributable to the Firm (“Li Claim”). The plaintiff also seeks a determination of various issues (“Issues”) relating to these third party claims (“TP Claims”).

4.  The 1^st defendant has previously commenced third party proceedings against the Firm as well. By this court’s decision in China Citic Bank International Limited v Li Yan Hung & Ors[2022] HKCFI 354 (overturning a decision also made by the Master), such proceedings were struck out on the basis that (i) the 1^st defendant’s intended third party claims against the Firm, which (like the TP Claims) were based on events taking place in 2009, were all time-barred; and (ii) in any event, none of these claims fell within any of the limbs under Order 16, rule 1(1) of the Rules of the High Court, Cap 4A (“RHC”).

5.  In summary, the Firm’s position is that the Order should be set aside by reason that:

(1)  First, granting leave to the plaintiff to issue the TPN would enable the plaintiff to abuse the court process, for the plaintiff has already commenced a writ action against the Firm in HCA 27/2023 (which remains extant) based on the same causes of action as those stated in the TPN: see Section D below.

(2)  Second, in any event, the TP Claims are all frivolous, obviously unsustainable and are bound to fail, in that:

(a)  As regards the DT Claim: (i) the intended contractual claim is clearly time-barred; and (ii) both the intended contractual claim and the intended claim in tort are plainly unarguable for want of actionable loss/damage (in that the DT is not registered and does not have priority over the Mortgage): see Section E1 below; and

(b)  As regards the Li Claim, it is based on the 1^st defendant’s assertions against the Firm which are wholly incredible and unarguable even on her own evidence and the undisputed contemporaneous documents before the court: see Section E2 below.

(3)  Third and in any event, the plaintiff has failed to demonstrate a prima facie case that the TP Claims fall within any of the three limbs of Order 16, rule 1(1) RHC which permit the issuance of third party notices: see Section F below.

B.  RELEVANT FACTUAL BACKGROUND

6.  The following undisputed factual background is extracted from the Skeleton Submissions of the Firm.

B1.  The Main Action

7.  The Main Action arises out of the plaintiff’s enforcement of a tripartite legal charge/mortgage (ie the Mortgage) over a property in Yuen Long (the “Property”).

8.  On the plaintiff’s pleaded case (insofar as relevant to the TP Claims):

(1)  The plaintiff is a bank and a licensed money lender, and since around August 2007 had extended banking facilities to the 2^nd defendant, which was its corporate customer at the material times.

(2)  By a facility letter dated 24 August 2009 (“Facility Letter”) accepted by the defendants, the plaintiff offered banking facilities (“Facilities”) to the 2^nd defendant, secured by, inter alia, the Mortgage executed in the plaintiff’s favour by the 1^st defendant, the registered owner of the Property.

(3)  On around 16 October 2009, the 1^st defendant executed the Mortgage to secure the 2^nd defendant’s indebtedness to the plaintiff under the Facilities (“Indebtedness”). Under the terms of the Mortgage, the 1^st defendant was liable (jointly and severally with the 2^nd defendant) to the plaintiff for the repayment of the Indebtedness.

(4)  In late September 2019, the 2^nd defendant defaulted on its repayment obligations and the plaintiff demanded payment of the outstanding Indebtedness from, inter alios, the 1^st defendant, who failed to comply with the demand.

(5)  By reason of the aforesaid, the plaintiff claims, inter alia, against the 1^st defendant for vacant possession of the Property and repayment of the outstanding indebtedness pursuant to the terms of the Mortgage.

9.  On the 1^st defendant’s pleaded case (insofar as relevant to the TP Claims):

(1)  the 1^st defendant is the former co-habitee of Mr Suen Ming Kuen (“Suen”), the sole shareholder and director of the 2^nd defendant.

(2)  On 1 November 2005, the 1^st defendant gave birth to Son, whose natural father was Suen.

(3)  In around 2008, Suen suggested to the 1^st defendant that he would purchase a property in Hong Kong as a residence for the 1^st defendant and Son, and that he would pay for the purchase and repay all mortgage loans such that the 1^st defendant would not be liable to pay anything.

(4)  In early 2009, Suen told the 1^st defendant that the Property had already been purchased in the 2^nd defendant’s name, and that he would arrange for the transfer of the Property to the 1^st defendant for her to hold on trust for Son until he turned 18 years old, at which point the 1^st defendant would transfer the Property to Son (“Trust Arrangement”).

(5)  On 12 October 2009, the 1^st defendant attended the Firm’s office on Suen’s arrangement to execute certain documents which, according to Suen, would affect the transfer of the Property to her in accordance with the Trust Arrangement. At the Firm’s office:

(a)  Suen and/or the Firm’s staff represented to the 1^st defendant (“Alleged Misrepresentation”) that she should execute the documents presented to her and that the effect of those documents was to transfer the Property to the 1^st defendant to be held on trust for Son, in line with the Trust Arrangement.

(b)  The Firm’s staff did not explain the contents, nature or effects of the documents presented to her for execution (“Documents”), which included the Mortgage and the Facility Letter.

(c)  Accordingly, the 1^st defendant signed the Documents without knowing their nature, contents or effect.

(d)  The 1^st defendant also signed the DT pursuant to the Trust Arrangement.

(6)  By reason of the aforesaid, the 1^st defendant counterclaims against the plaintiff for, inter alia:

(a)  A declaration that the plaintiff’s rights under the Mortgage are subject to Son’s beneficial interests in the Property;

(b)  A declaration that the Mortgage is rescinded and/or set aside on the basis of (i) non est factum, (ii) Suen’s undue influence over the 1^st defendant, of which the plaintiff had constructive notice via the Firm, and (iii) the Alleged Misrepresentation on the part of Suen and/or the Firm as the plaintiff’s agent; and

(c)  Damages in the event that the Mortgage is binding and enforceable against the 1^st defendant.

B2.  The plaintiff’s intended third party action

10.  On 25 October 2022, the plaintiff took out P’s Summons to seek leave to issue its own third party proceedings against the Firm in respect of the 1^st defendant’s counterclaim, claiming an indemnity and damages on the purported basis that:

(1)  At the material times, the Firm was retained by the plaintiff to perfect the security offered and provided under the Mortgage: TPN Ground 2 (“Retainer”);

(2)  It was an implied term under the Retainer (or alternatively, a tortious duty) that the Firm would exercise reasonable skill and care in performing its duties: TPN Ground 3;

(3)  Insofar as the Firm prepared the DT and supplied the same to the 1^st defendant for execution, the Firm breached its duty of care under the Retainer (or alternatively, acted negligently): TPN Ground 5; and

(4)  Insofar as the 1^st defendant is able to establish her pleaded case of non est factum, undue influence or misrepresentation attributable to the Firm, the Firm breached its duty of care under the Retainer (or alternatively, acted negligently): TPN Ground 6.

B3.  The plaintiff’s extant writ action against the Firm in HCA 27/2023

11.  On 13 January 2023, the plaintiff issued a generally indorsed writ against the Firm in HCA 27/2023, invoking completely identical causes of action to those stated in the TPN, namely:

(1)  A breach of an implied duty of care under the Retainer to perfect the security offered and provided under the Mortgage;

(2)  An alternative claim for negligence; and

(3)  A claim for indemnity against any claims brought by (inter alios) the 1^st defendant against the plaintiff in respect of the validity of the Mortgage.

C.  RELEVANT PRINCIPLES ON LEAVE TO ISSUE THIRD PARTY PROCEEDINGS

12.  Under Order 16, rule 2 RHC, the court has a general discretion in deciding whether to allow a third party notice to be issued.

13.  At the leave stage, where it can be shown that the intended third party claims are bound to fail such that granting leave serves no useful purposes, the court should take that into consideration in the discretionary exercise: Chinacast Education Corp v Chan Tze Ngon, HCA 1062/2012 (unrep, 9/10/2014) at §8 (Mr Registrar KW Lung).

14.  The court may therefore refuse to grant leave on the basis that the intended third party claims are frivolous.

15.  In determining whether a third party claim is bound to fail (or frivolous), the relevant principles in a strike-out application are instructive and should be applied. In this regard, where it is plain and obvious that the plaintiff’s case has no factual basis, has no “solid basis capable of proof”, and is a “myth” with “no substantial foundation”, the court may exercise its power to strike out. Thus, if a plaintiff pleads as a fact something which can clearly be shown to be “incontrovertibly false”, then on an application to strike out the court is not bound to accept the allegation as true and to proceed on a fictional basis: Lam Kit Sing v Chungshan Commercial Association, Hong Kong, HCA 2011/2014 (unrep, 29/06/2016) at §18 (G Lam J, as he then was).

16.  Here, the Firm submits that the plaintiff’s third party claims against the Firm are based on allegations by the 1^st defendant, which have no factual foundation.

D.  WHETHER ISSUE OF THE TPN WOULD BE AN ABUSE OF PROCESS OF THE COURT

17.  The Firm submits it is an abuse of court process to bring two actions in respect of the same cause of action and the subsequent action is liable to be struck out: see Buckland v Palmer [1984] 1 WLR 1109 at 1115 (Sir John Donaldson MR); Weng Chi-Cheong v Barclays Capital Asia Limited, HCA 741/2016 (unrep, 6/12/2016) at §59 (DHCJ Marlene Ng, as she then was).

18.  The rationale is: (i) to avoid any possibility of two courts reaching inconsistent decisions on the same issue; and (ii) the public interest in there being finality in litigation and in protecting citizens from being vexed more than once.

19.  The plaintiff does not dispute the above general principles. However, the plaintiff asks the court to note that the writ in HCA 27/2023 has not been served, and it was issued solely for the purpose of protecting and safeguarding the plaintiff’s position on time limitation concerns.

20.  The plaintiff refers to Kwok Chin Wing v GFT Holdings Ltd, HCA 2332/2004 (unrep, 19/04/2007), where Burrell J dealt with an application for joinder of a party, with consequential amendments to the claim. There, the plaintiff issued several protective writs pending the outcome of the joinder application. Similar to the present case, a complaint of abuse of process was made against the plaintiff. The learned Judge did not agree, and allowed the application for joinder. He stated this at §23 of his Decision:

“23. This complaint arises out of the fact that, at present, the plaintiff is pursuing concurrent actions against Chan, firstly by this application to join and, secondly by the filing of the protective writ naming him as a defendant. Given the fact that it is obvious that the protective writ will not proceed if this application succeeds and given also the fact that the plaintiff has affirmed that there will be no application to consolidate, I am satisfied that there neither is nor will be any abuse of process.”

21.  During the hearing, I enquired with the plaintiff whether it was prepared to give a similar affirmation. After taking instructions, the plaintiff’s counsel informed the court that the plaintiff offered to give the following undertaking to the court:

“Subject to the present appeal being dismissed and there being no further appeal from the decision of the court within the prescribed time, alternatively that any further appeal be dismissed, the plaintiff undertakes to discontinue HCA 27/2023 forthwith.”

22.  With such an undertaking having been given by the plaintiff, I am satisfied that there is no abuse of process by the plaintiff.

E.  WHETHERTP CLAIMS ARE ALL FRIVOLOUS AND BOUND TO FAIL IN ANY EVENT

23.  As can be seen from paragraph 10 above, the basis of the TP Claims is two-fold, namely the Firm’s alleged breach of duty of care in: (i) preparing the DT (ie the DT Claim); and (ii) its handling of the execution of the Mortgage as alleged by the 1^st defendant (ie the Li Claim). The Firm submits that neither basis is supportable and P’s Summons should be dismissed on the ground that the TP Claims are all frivolous and bound to fail.

E1.  The DT Claim

E1.1  Whether the intended contractual claim for breach of duty is time-barred

24.  A claim for breach of contract accrues at the time of breach: McGee on Limitation Periods (9^th edn; 2022) at §10.002. The applicable limitation period for a contractual claim is 6 years: Limitation Ordinance, Cap 347 section 4. It follows that a breach of contract claim is time-barred upon the expiry of 6 years since the date of breach.

25.  In the instant case, the DT Claim is partly based on an alleged breach of implied term under the Retainer: TPN Ground 5. The Firm submits that such contractual claim is obviously prima facie time-barred, in that:

(1)  The claim was premised upon the Firm’s preparation of the DT and provision of the same for the 1^st defendant’s execution: TPN Ground 5.

(2)  There is no dispute that, insofar as the DT was in fact executed, such execution took place either on 12 October 2009 (as the 1^st defendant alleges) or on 22 October 2009 (as the Firm alleges).

(3)  It follows that any contractual breach by the Firm would have occurred in October 2009, and the limitation period for the plaintiff’s contractual claims against the Firm would have expired by October 2015.

26.  To counter the Firm’s argument on limitation, the plaintiff seeks to rely on section 26(1) of the Limitation Ordinance, insofar as it relates to the deliberate concealment from the plaintiff of the fact that the DT was prepared and executed, in which case the period of limitation shall not begin to run until the plaintiff has discovered the concealment or could with reasonable diligence have discovered it.

27.  In this regard, the Firm submits that such reliance was misplaced:

(1)  To invoke this provision, the plaintiff must prove that some fact relevant to its right of action has been concealed from it either by a positive act of concealment or by any withholding of relevant information, but in either case, with the intention of concealing the fact or facts in question. It is necessary for the plaintiff to prove that there was a conscious decision on the part of the Firm to conceal or withhold the relevant information.

(2)  The Firm goes on to submit that the plaintiff’s contentions on deliberate concealment are a complete non-starter, for there is no evidence suggesting that the Firm made a conscious decision to conceal or withhold the DT from the plaintiff. In particular, even taking the plaintiff’s evidence to its highest, it was the 1^st defendant and Suen who intended to do so. This does not assist the plaintiff at all where there is no evidence that the Firm somehow shared this intention.

28.  I do not agree with the Firm’s submissions.

29.  As pointed out by the plaintiff, it is not disputed that the DT was prepared by the Firm on the insistence of the 1^st defendant and Suen and was deliberately withheld and concealed from the plaintiff as the 1^st defendant and Suen did not want the plaintiff, as well as Suen’s wife and family, to know about it.

30.  The firm argues that there is no evidence suggesting that the Firm made a conscious decision to conceal or withhold the DT from the plaintiff. I do not agree. Quite to the contrary, the decision to conceal has been apparent from the facts which are not capable of dispute. It might have been the 1^st defendant and Suen (and not the Firm) who wished to conceal the DT from the plaintiff, but the Firm had clearly assisted in carrying out that wish by not registering the DT at the Land Registry, thus concealing the same from the plaintiff.

E1.2  Intended contractual and tortious claims are plainly unarguable as there can be no actionable loss on the part of the plaintiff

31.  At common law, a breach of duty of care is only actionable where the claimant has suffered damage: Clerk and Lindsell on Tort (23^rd edn; 2020) at §7-07.

32.  In the present case, insofar as the DT Claim is based on the Firm’s alleged negligence in tort (TPN Ground 5), this claim is bound to fail in that the plaintiff could not possibly have suffered any loss as a result of the execution of the DT. In particular, the Firm submits that:

(1)  By virtue of section 3(2) of the Land Registration Ordinance, Cap 128 (“LRO”), any unregistered “instruments in writing” are null and void for all intents and purposes as against any subsequent bona fide purchaser or mortgagee for valuable consideration.

(2)  A written declaration of trust over landed interests is registrable under the LRO and a failure to register the same would attract the consequences under section 3(2): Chu Yam On & Anor v Li Tam Toi Hing (1956) 40 HKLR 250 at 257 (Lord Somervell).

(3)  No notice of any prior unregistered instrument (whether actual or constructive) shall affect the priority of a duly registered instrument: LRO section 4. Thus, a lack of bona fides for the purpose of LRO section 3(2) cannot be established merely by notice of a prior unregistered instrument: Keep Point Development Ltd v Chan Chi Yim & Ors [2000] 2 HKLRD 145 at 152D-F (DHCJ Woolley).

(4)  Here, even if the Mortgage was executed after the DT, it is incontrovertible that the Mortgage has priority over the DT under LRO section 3(2) and that the plaintiff is accordingly not bound by the Son’s alleged beneficial interest under the DT:

(a)  First, the Mortgage was duly registered whereas the DT, despite being registrable under the LRO, has never been registered.

(b)  Second, the plaintiff is and was plainly a mortgagee for valuable consideration by reason of the Facilities provided to the 2^nd defendant.

(c)  Third, the 1^st defendant has not pleaded any case of mala fides as the basis for binding the plaintiff to the DT. Although the 1^st defendant contends that the plaintiff had actual/constructive notice of the Son’s alleged beneficial interest, this (even if proved) does not itself demonstrate a lack of bona fides, and there is no discernible basis for suggesting otherwise. It is not open for the plaintiff to argue that the facts of this case went beyond having actual or constructive notice when no such case of bad faith is pleaded by the 1^st defendant at all. It follows that the only available finding in this regard is that the plaintiff acted bona fide at the material time.

(d)  Accordingly, the plaintiff is and was a bona fide mortgagee for valuable consideration and by virtue of LRO section 3(2), took the Mortgage free of Son’s alleged beneficial interests under the DT.

33.  Further, given the plaintiff could not possibly have suffered any loss by reason of the DT and the plaintiff is only seeking reliefs by way of an indemnity and damages for “any loss suffered” via its contractual claims, such contractual claims are equally unarguable even when they are not time-barred as held above.

34.  In purported answer to the point, the plaintiff indeed argues that the circumstances of the present case were that, if the 1^st defendant’s case is established, it would be a situation that exceeded a mere question of actual or constructive notice, as the preparation of the DT “was part of the same set of manoeuvres by the same firm, who undoubtedly was acting as an agent of the plaintiff under the retainer”.

35.  With respect, the plaintiff’s contention must be rejected. The Firm was only the agent of the plaintiff for the purpose of preparing the Mortgage, not for the DT. Indeed, the whole point of not registering the DT at the Land Registry was to prevent the plaintiff from having knowledge of the DT.

36.  Further, the plaintiff simply has no answer to the point that a lack of bona fides on the part of the plaintiff has not been pleaded by the 1^st defendant.

37.  In the premises, even if the Firm breached its contractual or tortious duty of care to the plaintiff in preparing the DT for the 1^st defendant’s execution, the plaintiff could not possibly have sustained any loss as a result of the DT. It follows that the DT Claim is wholly unarguable for want of loss.

E2.  The Li Claim

38.  The Li Claim is contingent upon the 1^st defendant successfully rescinding the Mortgage in the Main Action on the ground of non est factum, undue influence, and/or misrepresentation: TPN Ground 6.

39.  This rescission claim is in turn premised upon the 1^st defendant’s assertion that she did not understand the nature, content and effect of the Mortgage at the time of execution (the “Premise”).

40.  The Firm submits that the Li Claim is frivolous and bound to fail by reason that the Premise is wholly incredible and could not possibly succeed in light of (i) the indisputable contemporaneous evidence; (ii) the 1^st defendant’s own evidence; and (iii) the 1^st defendant’s giving of incontrovertibly false evidence.[1]

41.  First, the Premise is flatly contradicted by contemporaneous evidence which shows that the 1^st defendant knew full well the nature and effect of the Mortgage. In particular:

(1)  It is undisputed that prior to the execution of the Mortgage, the 1^st defendant signed a confirmation letter (“Confirmation Letter”) in the presence of a former solicitor of the Firm.

(2)  The Confirmation Letter recorded in Chinese (which the 1^st defendant is able to read) as well as English that she clearly understood “all the terms and legal consequences of the Mortgage … in favour of [the plaintiff] and the consequential legal obligations and liabilities on our part therefrom” (我們清楚明白有關我們簽立上述惠及承按人之合法押記的所有條文及其法律後果與及該合法押記對我們所產生的所有法律責任及債務).

(3)  When being confronted with the Confirmation Letter, the 1^st defendant explained that it “may have been among the Documents, so I probably would not have had the opportunity to know that it was there”. This is wholly incredible and contradicted by the undisputed fact that the 1^st defendant could read Chinese and did place her signature on the Confirmation Letter (so she must have known at the time that it was among the Documents signed).

42.  Second, the Premise is further destroyed by the 1^st defendant’s own evidence:

(1)  On the 1^st defendant’s own case, the Firm subsequently provided her with all the Documents on 10 November 2014 and those documents were then explained to her, whereupon she came to realise that the Documents contained a mortgage of the Property in which she was the mortgagor, as security of the 2^nd defendant’s loans from the plaintiff. Indeed, the attendance notes taken by the Firm on 31 October 2014 show that the 1^st defendant requested to “redeem” the Property from the plaintiff as the “Lender”, which indicates the 1^st defendant’s contemporaneous knowledge that the Documents concerned a mortgage of the Property. As held by this court in China Citic Bank International Limited v Li Yan Hung (Supra) at §52(2), the 1^st defendant “clearly could and did in fact find out about the nature of the Documents in November 2014”.

(2)  If the Premise were true, it would be wholly incredible that the 1^st defendant made no complaints at the time (whether to the plaintiff or the Firm) but only sought to make claims against the Firm many years thereafter in December 2020. Notably, the 1^st defendant’s evidence contains no explanation in this regard. This shows that there is nothing whatsoever in the Premise.

43.  Third, the Premise is plainly incredible in light of the incontrovertibly false evidence which the 1^st defendant has given on the issue. Notably:

(1)  The 1^st defendant asserted in her affidavit evidence that she “had never thought that the Documents related to a bank mortgage” and that she “would never have executed the Documents had she known their purpose was to secure Suen’s business loans”. This assertion runs contrary to the Confirmation Letter, which described in Chinese as well as English that the 1^st defendant was the “mortgagor” (按揭人) of the Property; (ii) the Mortgage was executed in favour of the plaintiff as the “mortgagee” (承按人); (iii) the 2^nd defendant was the “borrower” (借款人) under the Mortgage; and (iv) the 1^st defendant understood all the terms and legal consequences of the “Mortgage” (押記).

(2)  Moreover, the 1^st defendant asserted that she did not understand the nature of the Documents because they were all in English. However, the Confirmation Letter indisputably sets out the nature of the Mortgage in Chinese.

44.  Looking at the totality of the evidence and cumulatively, in particular, evidence which is either undisputed or indisputable, the above matters put beyond doubt that the Premise is without substantial foundation and incapable of proof. I agree that on this basis, the Li Claim is frivolous and bound to fail. The plaintiff cannot be allowed to rely on the 1^st defendant’s fictitious allegations which have no evidentiary foundation to commence third party proceedings against the Firm.

45.  The plaintiff’s answer to this analysis is that the court should not resolve issues of fact summarily, instead, all the factual issues will need to be resolved properly at a trial (see §§57-58 of the Plaintiff’s Submissions). I agree with the Firm that this is legally wrong as the court plainly has the power to do so in a case where the Li Claim is wholly incredible and unfit for trial, as discussed in paragraphs 12 to 16 above.

F.  NO PRIMA FACIE CASE UNDER ORDER 16, RULE 1(1) RHC

46.  In view of my findings made in Sections E1.2 and E2 above, it is strictly speaking not necessary for this court to make a determination on the issues raised in Section F of the Skeleton Submissions of the Firm.

47.  However, for the sake of completeness, I shall briefly give my views on the submissions of the Firm in that regard.

48.  The Firm submits that P’s Summons ought to be dismissed in any event because the plaintiff has not shown a prima facie case that the TP Claims fall within any of the three limbs under Order 16, rule 1(1) RHC.

49.  In particular, the Firm submits that the plaintiff has no enforceable right to indemnity (whether under the Retainer or otherwise) and so cannot avail of rule 1(1)(a).

50.  A right to indemnity may arise by contract, statute or implication of law.

51.  As to a contractual right to indemnity, generally a promise is not binding as a contract unless it is either made in a deed or supported by consideration: Chitty on Contracts (34^th edn; Vol 1) at §6-001.

52.  The consideration for a promise must be given in return for the promise, such that: (i) an act which has already been done before (and independently of) the giving of the promise does not in law amount to good consideration for that promise; and (ii) the consideration must move from the promisee: Chitty at §§6-029, 6-040.

53.  In the instant case, the only conceivable basis for the plaintiff to seek an indemnity against the Firm is the indemnity clause contained in clause 18 of the Retainer, which purports to confer a right to indemnity in the event that the Firm “committed any mistake(s) in preparing or completing the mortgage document(s) or in approving title”.

54.  The Firm submits that nevertheless, this clause does not assist the plaintiff because it is indisputably non-contractual and unenforceable for want of consideration:

(1)  The Retainer was not a deed. Thus, for the indemnity clause to have contractual effect, it must be supported by consideration moving from the plaintiff.

(2)  The indemnity clause is unsupported by such consideration, for it is undisputed that the Firm did not receive any remuneration from the plaintiff under the Retainer.

(3)  That the Firm was placed on the plaintiff’s list of approved solicitors’ firms for preparing and executing mortgages does not assist, for this had plainly happened before the Retainer was agreed in 2009 and was therefore past consideration which was legally invalid.

(4)  Accordingly, clause 18 of the Retainer is obviously non-contractual and does not give rise to any enforceable right to indemnity.

55.  I do not agree with the Firm’s submissions.

56.  Although there was no payment from the plaintiff, the fees for preparing the Mortgage was paid by Suen/the 2^nd defendant pursuant to a clause in the Facility Letter providing that:

“5.2 Cost Indemnity: The Borrower shall indemnify the Bank against all costs and expenses (including the legal fees on a full indemnity basis) incurred by the Bank in connection with the Facilities, including all costs and expenses incurred by the Bank as a result of:

…

(b) the preparation, execution or amendment of any documents in connection with the Facilities or any security or guarantee in relation to the Facilities; …”

57.  Thus understood, the fact of the plaintiff engaging the Firm on the Retainer (which the plaintiff was not legally bound to do) in return for the promise by the Firm to undertake the preparation of the Mortgage, would in my view be sufficient consideration moving from the plaintiff in the circumstances.

G.  CONCLUSION

58.  For the reasons set out in Sections E1.2 and E2 above, I would allow the Firm’s appeal and make the following order:

(1)  the Order be set aside; and

(2)  P’s Summons be dismissed.

59.  At the hearing, the parties agreed that costs should follow the event. Accordingly, I make the following order as to costs:

(1)  the costs of P’s Summons and all costs of and occasioned by the TPN be paid by the plaintiff to the 2^nd third party, with certificate for two counsel; and

(2)  the costs of this appeal be paid by the plaintiff to the 2^nd third party, with certificate for two counsel.

60.  Lastly, I express my gratitude to counsel on both sides for their helpful assistance in this matter.

Mr Joseph Vaughan, instructed by Messrs S K Wong & Co, for the plaintiff

Ms Sara Tong, SC, leading Mr Cedric Yeung, instructed by Messrs P C Woo & Co, for the 2^nd third party

HCMP 2208/2019

[2022] HKCFI 354

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 2208 OF 2019

________________________

________________________

________________________

____________________

J U D G M E N T

____________________

A. INTRODUCTION

1.  This is the appeal by the 1^st Third Party George Y C Mok & Co (the “Firm”) by way of Notice of Appeal dated 21 May 2021 against the following two orders of Master KW Wong dated 7 May 2021 (“Master KW Wong’s Orders”):

(1)  dismissing the Firm’s application by Amended Summons (the “Strike Out Summons”) for an Order that the Third Party Notice issued by the 1^st defendant against the Firm on 10 December 2020 (as amended on 24 February 2021) (the “TPN”) be set aside and/or struck out; and

(2)  allowing the application of the 1^st defendant by Summons filed on 28 April 2021 (“D1’s Amendment Summons”) for leave to further amend the TPN as per the draft Re-Amended Third Party Notice (the “Draft Re-Amended TPN”) annexed thereto.

2.  This appeal is by way of a re-hearing. In summary, the Firm’s position is that Master KW Wong’s Orders should be set aside and that:

(1)  The TPN should be struck out or set aside by reason that:

(a)  First, the 1^st defendant’s claims against the Firm as set out in the TPN (the “TP Claims”) are clearly time-barred even on the 1^st defendant’s own case (see Section D below);

(b)  Second, the TP Claims do not fall within any of the three limbs of Order 16, rule 1(1), Rules of the High Court (“RHC”) which permit the issuance of third party notices, and the TPN is therefore defective (see Section E below); and

(c)  Third, the TP Claims are in any event frivolous, vexatious and an abuse of process of the court, in that (inter alia) the 1^st defendant’s assertions against the Firm are wholly incredible and unarguable even on her own evidence and the undisputed contemporaneous documents before the court.

(2)  D1’s Amendment Summons (raising serious allegations of fraud against the Firm for the very first time) should be dismissed because:

(a)  the proposed amendments do not cure any of the aforementioned defects in the TPN and as such they are futile, in that the TPN is liable to be set aside or struck out whether with or without the proposed amendments;

(b)  the new allegation of fraud is unparticularised, wholly unsupported by the 1^st defendant’s own evidence and is unarguable.

B.  BACKGROUND

B1.  The Main Action

3.  The main action (“Main Action”) between the plaintiff and the defendants arises out of the plaintiff’s enforcement of a tripartite legal charge/mortgage (the “Mortgage”) over a property in Yuen Long (the “Property”).

4.  The events giving rise to the plaintiff’s claim against the 1^st defendant (insofar as they are relevant to the TP Claims) can be summarised as follows:

(1)  The plaintiff is a bank and a licensed money lender, and since around August 2007 had extended banking facilities to the 2^nd defendant which was its corporate customer at the material times.

(2)  The 1^st defendant is the former co-habitee of Mr Suen Ming Kuen (“Suen”), the sole shareholder and director of the 2^nd defendant: the 1^st defendant’s Defence and Counterclaim (“DCC”) §4(b).

(3)  By a facility letter dated 24 August 2009 (the “Facility Letter”) accepted by the defendants, the plaintiff offered banking facilities (the “Facilities”) to the 2^nd defendant, secured inter alia by the Mortgage executed in the plaintiff’s favour by the 1^st defendant, the registered owner of the Property.

(4)  On around 16 October 2009, the 1^st defendant executed the Mortgage to secure the 2^nd defendant’s indebtedness to the plaintiff under the Facilities (the “Indebtedness”). Under the terms of the Mortgage, the 1^st defendant was liable (jointly and severally with the 2^nd defendant) to the plaintiff for the repayment of the Indebtedness.

(5)  In late September 2019, the 2^nd defendant defaulted on its repayment obligations and the plaintiff demanded payment of the outstanding Indebtedness from inter alios the 1^st defendant, who failed to comply with the demand.

5.  On 28 November 2019, the plaintiff commenced the Main Action by taking out an Originating Summons pursuant to Order 88 RHC, claiming against inter alios the 1^st defendant for vacant possession of the Property and repayment of the outstanding Indebtedness pursuant to the terms of the Mortgage.

6.  By an Order dated 7 August 2020, Master Kot ordered that the Main Action be continued as though it had begun by writ, with the plaintiff and the defendants directed to file pleadings.

7.  The gist of the 1^st defendant’s defence, at least insofar as it implicates the Firm, was that she had been induced by the misrepresentation of Suen and/or the Firm to execute the Mortgage. Specifically, the 1^st defendant alleged that:

(1)  In 2005, the 1^st defendant gave birth to a son (“Son”) whose natural father was Suen.

(2)  In around 2008, Suen suggested to the 1^st defendant that he would purchase a property in Hong Kong as a residence for the 1^st defendant and Son, and that he would pay for the purchase and repay all mortgage loans such that the 1^st defendant would not be liable to pay anything.

(3)  In early 2009, Suen told the 1^st defendant that the Property had already been purchased in the 2^nd defendant’s name, and that he would arrange for the transfer of the Property to the 1^st defendant for her to hold on trust for Son until he turned 18 years old, at which point the 1^st defendant would transfer the Property to the Son (the “Trust Arrangement”).

(4)  On 12 October 2009, the 1^st defendant attended the Firm’s office on Suen’s arrangement to execute certain documents which, according to Suen, would effect the transfer of the Property to her in accordance with the Trust Arrangement.

(5)  At the Firm’s office, Suen and/or the Firm’s staff had represented to the 1^st defendant (the “Alleged Misrepresentation”) that she should execute the documents presented to her, and that the effect of those documents was to transfer the Property to the 1^st defendant to be held on trust for the Son, in line with the Trust Arrangement.

(6)  The Firm’s staff had not explained the contents, nature or effect of the documents presented to her for execution,which included inter alia the Mortgage and the Facility Letter (the “Documents”). Nor had the Firm’s staff explained to her that the Documents would have the effect of making the 1^st defendant liable for the 2^nd defendant’s liabilities to the plaintiff.

(7)  The 1^st defendant therefore signed the Documents at the Firm’s office on 12 October 2009, without knowing their nature, contents or effect.

(8)  The 1^st defendant further executed a declaration of trust (“Declaration of Trust”) pursuant to the Trust Arrangement.

B2.  The Third Party Action

8.  On 10 December 2020, 11 years after the Mortgage was signed, the 1^st defendant commenced the third party proceeding herein (“TP Action”) by issuing the TPN against the Firm and Suen (as the 1^st and 2^nd Third Parties respectively).

9.  Under the TPN, the 1^st defendant’s claims against the Firm was “to be indemnified against and/or contribution to the plaintiff’s claims by way of damages for loss she by herself, and as trustee for her son pursuant to a Declaration of Trust…shall have suffered”.

10.  The wrongdoing alleged in the TPN to have given rise to the TP Claims can be summarised as follows:

(1)  That the Firm had misrepresented the nature, content and/or effect of the documents presented to her for signature, including the Mortgage and the Facility Letter: see TPN Ground 3.

(2)  That the Firm owed a duty of care to the 1^st defendant and Son to exercise the knowledge, skill and care possessed by a reasonably diligent and competent solicitor in acting for the 1^st defendant, which was breached inter alia by its alleged failure to give proper and professional advice to the 1^st defendant: TPN Grounds 4, 5 and 6.

(3)  That the Firm owed the 1^st defendant and the Son fiduciary duties, which were breached by the Firm inter alia when it (i) made the Alleged Misrepresentation to her, and (ii) acted for both the plaintiff and the 1^st defendant despite an “obvious conflict of interests”: TPN Grounds 4 and 6.

11.  On 20 January 2021, the Firm took out the Strike Out Summons (as amended on 5 May 2021) seeking an order to strike out or set aside the TPN pursuant to Order 18, rule 19 and Order 16, rule 6 RHC, and/or the inherent jurisdiction of the court.

12.  On 14 April 2021, the Firm wrote to the 1^st defendant giving her a last chance to withdraw the TP Claims on the basis (inter alia) they are clearly time-barred, failing which the Firm will seek indemnity costs against her, but she refused to do so.

13.  On 23 April 2021 (just 2 weeks before the hearing of the Strike Out Summons), the 1^st defendant issued D1’s Amendment Summons to amend the TPN to include an allegation of fraud for the very first time which, so the Firm submits, is no more than a misconceived belated attempt to get round the TP Claims being time barred.

C.  APPLICABLE LEGAL PRINCIPLES ON STRIKING OUT

C1.  Striking Out of a third party notice under Order 18, rule 19 RHC

14.  Although a third party notice is strictly speaking not a pleading, it can be nonetheless be struck out and the third party claim dismissed in accordance with the established principles governing strike-out applications brought under Order 18, rule 19 RHC and/or the inherent jurisdiction of the court: Li Shiu To v Cheung Pik [2014] 6 HKC 672 at §17, per Cheung CJHC (as he then was). See also Yifung Developments v Liu Chi Keung Ricky[2019] HKCFI 2246 at §§1, 33.

15.  The principles governing strike-out applications under Order 18, rule 19 RHC are well established. In summary, they allow claims to be struck out if they are obviously unsustainable, frivolous and vexatious, and/or an abuse of the court’s process:

(1)  A “reasonable cause of action” means a cause of action with some chance of success when only the allegations in the pleadings are considered.

(2)  A claim is frivolous when it is incapable of reasoned argument, without foundation or where it cannot possibly succeed; and a claim is vexatious when it is oppressive and/or lacks bona fides. Any action which the plaintiff clearly cannot prove and without solid basis may be dismissed as frivolous and vexatious.

(3)  The court will strike out a claim if its machinery is being abused. Pursuing a claim where the pleadings are entirely without substance or where the claim is frivolous and vexatious is an abuse of the court’s process.

(4)  Any action/claim which the plaintiff cannot prove and which is without solid basis may be dismissed under the court’s inherent jurisdiction as frivolous and vexatious.

16.  The same principles apply to third party claims. For example, a third party notice will be struck out by the court if:

(1)  The claim set out in the third party notice is frivolous, vexatious, and/or constitutes an abuse of process: Li Shiu To, supra, §17.

(2)  The third party claim is time-barred: Parshad v Chit Hing Construction Engineering [2011] 1 HKLRD 217 at §121.

(3)  The third party claim is obviously unsustainable, unarguably bad and cannot possibly succeed, for example, where the defendant’s case is contradicted by its own evidence: Yifung Developments, supra, §§41 and 55.

17.  It has been held that the court’s power to strike out can be exercised where it is plain and obvious that the plaintiff’s case has no factual basis, has no “solid basis capable of proof”, and is a “myth” with “no substantial foundation”. Thus if a plaintiff pleads as a fact something which can clearly be shown to be “incontrovertibly false”, then on an application to strike out on that basis the court is not bound to accept the allegation as true and to proceed on a fictional basis: Lam Kit Sing v Chungshan Commercial Association, Hong Kong, HCA 2011/2014 (unrep, 29/06/2016) §18 per G Lam J (as he then was).

18.  The court must not proceed on a blinkered approach and should look at the totality of the evidence, in particular, evidence which is either undisputed or undisputable: Chu Yue Bun v Lai Shiu Woon[2020] HKCFI 2195 at §25 per DHCJ Maurellet SC.

C2.  Terminating third party proceedings/setting aside third party notices

19.  Further, the court has powers to terminate third party proceedings pursuant to Order 16, rule 4(3)(c) and rule 6 RHC, by setting aside third party notices and refusing third party directions respectively.

20.  These powers under Order 16 RHC to terminate third party proceedings are flexible case management powers that exist in parallel with the court’s power to strike out third party notices under Order 18, rule 19 RHC and/or its inherent jurisdiction, and may be exercised where the court considers it fair and convenient to do so: Li Shiu To, supra, §23.

21.  For example, the court will exercise its powers under Order 16 rule 4 RHC to dismiss an application for third party directions thereby terminating the third party claim, if the claim falls outside all three limbs of Order 16, rule 1(1) RHC.

D.  THE TP CLAIMS ARE CLEARLY TIME-BARRED

D1.  Limitation periods applicable to the TP Claims

22.  As noted in paragraph 10 above, the TP Claims are premised on the following alleged causes of action, all of which are subject to a 6-year limitation period:

(1)  The Alleged Misrepresentation (TPN Ground 3);

(2)  Breach of duty of care (in contract and tort) (TPN Grounds 4 to 6); and

(3)  Breach of fiduciary duty (TPN Grounds 4 and 6).

23.  The causes of action for misrepresentation and breach of duty of care (whether in tort or contract) are subject to the 6-year time limitation applicable to claims in contract and tort: section 4 Limitation Ordinance,Cap 347 (“LO”).

24.  Claims for breach of fiduciary duty are similarly subject to a 6-year limitation, by analogy to claims for breach of trust to which section 20(2) LO applies: see TheNew China Hong Kong Group Ltd v Ernst & Young, HCCL 41/2004, 2/2005 (unrep, 29/08/2008) at §151.

25.  The calculation of time in respect of third party claims is further governed by section 35(1)(a) LO, which provides that:

“(1) For the purposes of this Ordinance, any new claim made in the course of any action shall be deemed to be a separate action and to have commenced -

(a) In the case of a new claim made in or by way of third party proceedings, on the date on which those proceedings were commenced…”

26.  A third party proceeding is “commenced” when the third party notice is issued out of the Registry, see Parshad, supra,at §93.

27.  Further, once a limitation defence is pleaded, the onus lies on the plaintiff to prove that the cause of action accrued within the relevant limitation period, even in a strike-out application: Kensland Realty Ltd v Tai Tang & Chong (2008) 11 HKCFAR 237, at §153.

28.  Claims which are plainly and obviously time-barred are liable to be struck out as being frivolous, vexatious or an abuse of the process of the court: Ronex Properties Ltd v John Liang Construction Ltd [1983] 1 QB 398 at 408.[1]

D2.  The TP Claims are time-barred

29.  I agree that the 1^st defendant’s claims against the Firm herein are plainly and obviously time-barred. Since the TPN was issued on 10 December 2020, any causes of action that accrued to the 1^st defendant outside the preceding 6 years, ie prior to 10 December 2014, would be time-barred and liable to be struck out.

30.  First, the 1^st defendant’s causes of action in tort, ie misrepresentation and breach of tortious duty of care, would have accrued when the 1^st defendant first suffered damage: McGee on Limitation Periods (8^th ed) §5.008.

31.  Where a person executes a mortgage as a result of his solicitor’s breach of his duty of care, he becomes subject to an encumbrance over his property as well as a liability towards the mortgagee. Damage is therefore suffered, and the cause of action accrues, upon the execution of the mortgage: Forster v Outred[1982] 1 WLR 86, at 94C-F, 98D-F; McGee §5.030, §5.032.

32.  The execution of the Mortgage caused the 1^st defendant’s financial position to be measurably worse than if she had not entered into it, and hence damage was suffered. The fact that the precise quantification of the loss may only be possible on a later date, by which time it may have become more serious, does not detract from the earlier accrual of the cause of action: Chiu Kwai Ping v Yip, Tse & Tang (a firm)[2020] HKCA 886 at §27 per Kwan VP; Wang Haihong & Ors v JP Morgan Securities (Asia Pacific Ltd) & Anor[2021] HKCFI 2840 at §§36-38.

33.  On the 1^st defendant’s own case, she executed the Mortgage and Facility Letter on 12 October 2009.

34.  The 1^st defendant’s alleged causes of action against the Firm in misrepresentation and breach of duty of care (in tort) would thus have accrued on 12 October 2009, and over 11 years would have lapsed by the time the TPN was issued. Accordingly, these causes of action are clearly time-barred.

35.  Second, the 1^st defendant’s causes of action for any breaches of fiduciary duty or contractual duty of care would have accrued at the time of the breaches themselves: McGee§§10.002 and 14.018.

36.  Again, on the 1^st defendant’s own case, all the events which are said to give rise to the breaches of fiduciary duty and/or contractual duty of care occurred on 12 October 2009. These causes of action are therefore also time-barred.

37.  In light of the expiry of all the relevant limitation periods, the TP Claims are liable to be struck out as being frivolous, vexatious or an abuse of the process of the court: see paragraph 28 above. The amendments in the Draft Re-Amended TPN do nothing to change this conclusion.

D3.  The 1^st defendant’s purported reliance on sections 6 and 22 LO is misplaced

38.  The 1^st defendant purported to rely on sections 6 and 22 LO to contend that the TP Claims are not time-barred, by recasting her claims as “claims for contribution brought by D1 as Son’s trustee”. However, this argument is wholly misconceived, as was in fact abandoned by the 1^st defendant’s counsel at the hearing before Master KW Wong. For completeness, these arguments are dealt with briefly below.

39.  The effect of sections 6 and 22 LO can be summarised as follows:

(1)  Under section 6 LO, a right to recover contribution pursuant to section 3 Civil Liability (Contribution) Ordinance, Cap 377, is subject to a 2-year limitation period, with the date of accrual being the date of the relevant judgment, arbitral award or settlement agreement giving rise to the right; and

(2)  Where a cause of action accrues to a person under a disability (for example, an infant), section 22 LO provides that the applicable limitation period does not begin to run until the person ceases to be under the disability (for example, when an infant reaches the age of majority).

40.  I accept the Firm’s submission that the 1^st defendant’s purported reliance on sections 6 and 22 LO is wholly misplaced, as neither section is relevant to the TP Claims.

41.  First, it is a complete mischaracterisation of the TP Claims to call them “claims for contribution”. As will be explained below, a right to recover “contribution” from a third party arises where the defendant and the third party are jointly liable to the plaintiff in respect of the same damage (for example, where an employer and its contractor are jointly liable in negligence to an injured employee).

42.  On the present facts, there can be no question of the Firm becoming liable towards the plaintiff on the basis of wrongs that were allegedly committed against the 1^st defendant alone: for example, the Firm cannot become liable to the plaintiff in respect of an alleged breach of fiduciary duties owed towards the 1^st defendant. The TP Claims are therefore no more than ordinary claims for damages; they are not claims for contribution at all. As such, section 6 LO is completely irrelevant to the TP Claims.

43.  Second, the TP Claims as set out in the TPN are stated to be the 1^st defendant’s own claims rather than those of the Son, being claims for “damages for loss she by herself, and as trustee for her son…shall have suffered”. If the loss giving rise to the TP Claims is alleged to have been suffered by the 1^st defendant herself rather than by Son (regardless of the capacity in which she suffered such loss), then any causes of action would have accrued to the 1^st defendant rather than the Son, and section 22 LO would have no application.

44.  Third, under Order 16, rule 1(1) RHC, a third party notice can only be issued by a defendant in an action. The Son is not a defendant in the Main Action - he therefore has no locus to commence or participate in any third party actions. It follows that insofar as the TP Claims are said to be the Son’s claims rather than those of the 1^st defendant, then the TPN would be fundamentally defective and liable to be set aside or struck out even if the limitation periods on the TP Claims were to be extended by virtue of section 22 LO: see paragraph 21 above.

45.  In short, sections 6 and 22 LO simply do not avail the 1^st defendant. If the TP Claims belong to the 1^st defendant, they are firmly time-barred as neither section applies; if they belong to the Son instead, then they cannot be brought against the Firm by way of the present TP Action, as the Son would have no locus to commence or participate in the TP Action.

D4.  Any purported reliance by the 1^st defendant on sections 26 and 31 LO is impermissible and in any event misplaced

46.  At the hearing before Master KW Wong, the 1^st defendant purported to rely, for the very first time, on sections 26 and 31 LO to extend the limitation period for the TP Claims, basing such arguments on the newly raised allegations of fraud in the Draft Re-Amended TPN.

47.  This is wholly impermissible, given that the 1^st defendant had never sought to rely on these sections previously in her affirmations filed in opposition to the Strike Out Summons and the Firm never had the opportunity to file evidence in response: see Ronex, supra, p 408C-D; Yanfull, supra, p 56C-D and footnote 1 above.

48.  Without prejudice to the aforesaid, the Firm submits that even on the 1^st defendant’s own evidence, she simply cannot show that her case comes within the ambit of these sections.

D4.1  Purported reliance on Section 26 LO

49.  Section 26(1) LO provides that:

“Subject to subsection (4), where in the case of any action for which a period of limitation is prescribed by this Ordinance, either-

(a) the action is based upon the fraud of the defendant;

(b) any fact relevant to the plaintiff’s right of action has been deliberately concealed from him by the defendant; or

(c) the action is for relief from the consequences of a mistake,

the period of limitation shall not begin to run until the plaintiff has discovered the fraud, concealment or mistake (as the case may be) or could with reasonable diligence have discovered it.” (Emphasis added)

50.  The burden falls squarely on the 1^st defendant to demonstrate that the circumstances of this case falls strictly and literally within the exception: Hotung Investment (China) Ltd v Ernst & Young (a firm) [2012] 5 HKLRD 421 at §35 per Kwan JA (as she then was). The 1^st defendant has plainly failed to satisfy such burden.

51.  First, it is unclear which limb of section 26(1)(a)-(c) LO the 1^st defendant is seeking to rely upon. In any event, it is plain that none of the 3 limbs can apply to this case:

(1)  There is no arguable case of fraud against the Firm for the purpose of s 26(1)(a):

(a)  As mentioned above, the allegation of fraud was only sought to be introduced by the 1^st defendant on 28 April 2021 (by way of re-amendment to the TPN) for the very first time, some 11.5 years after the Mortgage was signed, and is clearly an afterthought in order to get round the fact that the TP Claims are time-barred.

(b)  No explanation has been provided by the 1^st defendant as to the gross delay in making such a serious allegation, for which no particulars or evidence in support have been provided.

(c)  It is trite that where fraud or serious dishonest conduct is being alleged, it is important to examine the foundation of the pleading, and such an allegation should not be levelled (and is liable to be struck out) unless it can be backed up by credible material: Chinachem Charitable Foundation Limited v Chan Wai Tong, HCCL 6/2020 (unrep, 11/05/2021) at §§22, 30.

(d)  There is not a shred of evidence that would support an allegation of fraud on the part of the Firm. Such contention is inherently absurd when the Firm does not stand to benefit at all from the 1^st defendant signing the Mortgage. It is readily apparent that the 1^st defendant’s allegations as to the Firm’s conduct as particularised at paragraph 6 of the Draft Re-Amended TPN and as set out in her own affirmation is entirely consistent with negligence (as opposed to deliberately wrongdoing including fraud).

(2)  There is similarly no arguable case of deliberate concealment for the purpose of section 26(1)(b):

(a)  To rely on deliberate concealment under section 26(1)(b) LO, the 1^st defendant must prove that some fact relevant to her right of action has been concealed from her either by a positive act of concealment or by any withholding of relevant information, but in either case, with the intention of concealing the fact or facts in question. It is necessary for the 1^st defendant to prove that there was a conscious decision to conceal or withhold the relevant information: Lee Tsan Sum v David Wong Pui Hon & Ors, HCA 308/2004 (unrep, 7/07/2010) at §§71-72.

(b)  The 1^st defendant has provided no evidence at all of any positive act of concealment on the part of the Firm.

(3)  Section 26(1)(c) does not apply as the 1^st defendant is not seeking as against the Firm any relief from the consequences of a mistake.

52.  Second, even if the 1^st defendant can establish that this case falls within any of the limbs under section 26(1)(a)-(c) LO, the onus is on her to show that she could not with reasonable diligence have discovered the fraud, the concealed facts or the mistake, ie she could not have discovered it without exceptional measures which she could not have reasonably been expected to take: Paragon Finance plc v DB Thakerar & Co (a firm) [1999] 1 All ER 400 at 418b-c. She has failed to discharge such onus.

(1)  The 1^st defendant has not filed any evidence to show that she could not have discovered any fraud or concealment with reasonable diligence. It is trite that if a party does not file evidence as to what steps it has taken to discover the wrong, “it is difficult to see how it can have discharged the burden of showing that [it comes] within the section”: Paragon Finance at 418a.

(2)  To the contrary, it is obvious that a simple land search would have revealed the Mortgage, which was at all material times registered with the Land Registry. Further, even on the 1^st defendant’s own evidence, she clearly could and did in fact find out about the nature of the Documents in November 2014.

(a)  It is the 1^st defendant’s own evidence that she had been provided with all the Documents by the Firm on 10 November 2014 and those documents were then explained to her, whereupon she came to realise that the Documents contained a mortgage of the Property in which she was the mortgagor, as a guarantee for the 2^nd defendant’s loans from the plaintiff.

(b)  Notwithstanding this, the 1^st defendant did not make any complaints, and even explored the possibility of redeeming the mortgage with the plaintiff in April 2019.

(c)  It was only when these proceedings were commenced that the 1^st defendant asserted for the first time that she was induced by the Alleged Misrepresentation to sign the Mortgage.

53.  For the aforesaid reasons, any purported reliance on section 26 LO to extend time is bound to fail.

54.  At paragraph 18 of the 1^st defendant’s Skeleton Argument, the 1^st defendant submitted that one of the central focal points of the case, which the Firm avoids addressing, are the following documents:

(1)  the Warning Notice [Appendix C] dated 12 October 2009 (the “Warning Notice”);

(2)  the Acknowledgement of Legal Advice [Appendix D] Letter dated 12 October 2009 (the “Acknowledgement Letter”); and

(3)  the Letter of Confirmation dated 12 October 2009 (the “Confirmation Letter”).

(collectively, the “Alleged Concealed Documents”)

55.  The 1^st defendant went on to submit at paragraph 19(h) of the Skeleton Argument that it was upon request by the 1^st defendant’s solicitors on 12 December 2019, and again on 6 January 2020 protesting the Firm’s unreasonable request for HK$3,000 as administrative fees, the Alleged Concealed Documents were finally provided to the 1^st defendant’s solicitors on 10 January 2020.

56.  At paragraph of 23 of her Skeleton Argument, the 1^st defendant submitted that the Alleged Concealed Documents contain fact relevant to the 1^st defendant’s right of action because:

(1)  that the Firm acted or assumed duties as the 1^st defendant’s solicitors is vital. Without this, the 1^st defendant’s cause of action in breach of contract, negligence, fiduciary duty, as well as misrepresentation would not be complete;

(2)  without the Alleged Concealed Documents, the 1^st defendant could not have known the fact that the Firm acted or assumed duties as the 1^st defendant’s solicitors.

57.  I do not accept the 1^st defendant’s submissions.

58.  Paragraph 2(a) of the Amended TPN pleaded that the Firm was retained by the 2^nd Third Party to act for the 1^st defendant as her solicitors “(i) on the purported purchase of the Property by the 1^st defendant as purchaser from the 2^nd defendant as vendor for the purported consideration of HK$4,400,000; and (ii) on the Declaration of Trust whereby the 1^st defendant should hold the Property as trustee for the beneficial interest [sic] the Son”. Thus, it is not part of the 1^st defendant’s case that the Firm had acted for the 1^st defendant on the Mortgage. The “concealment” of that fact cannot be material to the 1^st defendant’s case.

59.  Moreover, the point is not open to the 1^st defendant factually. At paragraph 5(e)(iii) of the 2^nd Affidavit of the 1^st defendant dated 19 March 2021, the 1^st defendant stated as follows:

“有關現見於展示文件“DL-3”的標示2014年11月10日的文件，我確實有於2014年11月10日上莫玄熾律師行，並交了影印費及拿到了該等文件。我相信當時是有被要求並簽過文件收據的。” (Emphasis supplied)

60.  The document dated 10 November 2014 contained in Exhibit “DL-3” refers to a document entitled “Schedule of Title Deeds and Documents” signed by the 1^st defendant acknowledging receipt of, inter alia, a copy of the Warning Notice and a copy of the Acknowledgement Letter.

61.  In the premises, the 1^st defendant’s case based on section 26 LO is obviously unsustainable.

D4.2  Purported reliance on Section 31 LO

62.  Section 31 LO provides for postponement of time limitation periods for latent damage cases. This is not such a case.

63.  The court’s approach to determine the applicability of section 31 LO has been set out by Harris J in Fok Chun Yue Benjamin v Yau Wing Co Ltd & Anor, HCMP 3250/2015 (unrep, 21/01/2016) where it was stated (at §§13-14) as follows:

“[13] Section 31 of the Limitation Ordinance has been considered and its operation explained by the Court of Final Appeal in Kensland Realty Ltd v Tai, Tang & Chong. As Ribeiro PJ explains in paragraph 73, s31 is concerned with the plaintiff’s knowledge relating to the damage incurred and not with the defendant’s liability. Section 31(5) lays down an objective test: would a reasonable person with knowledge of the facts who had suffered such damage have considered it sufficiently serious to justify instituting proceedings. In s31(7) “knowledge” is to be taken to include knowledge which the prospective plaintiff might reasonably have been expected to acquire from facts observable or ascertainable by him or from facts ascertainable by him with appropriate expert advice. As Riberio PJ goes onto explain in paragraph 79:

‘79. Section 31(5)(a) establishes a low threshold. If a reasonable person knows that the defendant will not contest liability and will pay up, quite minor damage may be thought to justify the cost and effort of issuing a writ. It follows that where a plaintiff becomes aware or has imputed to him knowledge of some actual damage, provided that it is not so trivial as to be not worth bothering about, the knowledge requirement of s 31(5)(a) is likely to be satisfied.’

[14] Knowledge of the relevant damage will thus be taken to be attributable to a person at the time at which he can reasonably have been expected to know sufficient relevant information, having in the first instance become aware of facts, which would cause a reasonable person to inquire further into the circumstances of the relevant damage, if he had sought assistance from lawyers or other suitable experts and would have been likely to have obtained advice that would have led a reasonable person to conclude that the damage was sufficiently serious to justify commencing proceedings.” (Emphasis added)

64.  The 1^st defendant had not even begun to address the requirements of section 31 LO in her evidence at all.

65.  Even if the 1^st defendant were to allege that the encumbrance was not known to her at the time of execution of the Mortgage, at least by November 2014 when she obtained the documents from the Firm and had someone explain the contents to her, she knew, on her own evidence, that she signed the Mortgage which had the effect of encumbering the Property as security for the debts of the 2^nd defendant. She had sufficient knowledge by then to justify instituting action against the Firm, but chose not to do so.

66.  For the aforesaid reasons, it is plain and obvious that the TP Claims are time-barred and thus ought to be struck out on this basis alone.

67.  Without prejudice to this, and for the sake of completeness, my view on the second ground relied on by the Firm for striking out or setting aside the TP Claims are set out below.

E.  THE TP CLAIMS FALL OUTSIDE ORDER 16, RULE 1(1) RHC

68.  Third party notices can only be issued where at least one of the three limbs of Order 16, rule 1(1) RHC is satisfied. Further to the time bar ground above, which is determinative of the present application, I agree that the TP Claims do not fall within any of those three limbs. As such, the TPN is defective and should be struck out and/or set aside on this ground as well. The proposed amendments in the Draft Re-Amended TPN do nothing to change this conclusion.

E1.  Claims for contributions or indemnities - O 16, r 1(1)(a) RHC

69.  Order 16, rule 1(1)(a) RHC provides that a defendant in an action may issue a third party notice in respect of “claims against a person not already a party to the action any contribution or indemnity” (emphasis added).

70.  A right to contribution may arise at common law as between joint debtors, joint contractors, joint trustees, joint sureties or joint wrongdoers, and it may also be created by statute. In particular, a statutory right to contribution is created by section 3(1) of the Civil Liability (Contribution) Ordinance, Cap 377, which provides that “any person liable in respect of any damage suffered by another person may recover contribution from any other person liable in respect of the same damage (whether jointly with him or otherwise).”

71.  As for rights to indemnity, such rights may arise by contract, statute, or implication of law.

72.  As already explained at paragraph 42 above, the TP Claims are not claims for “contribution” from the Firm, premised as they are on the Firm’s alleged wrongdoing against the 1^st defendant. The Firm clearly cannot be liable to the plaintiff (whether jointly with the 1^st defendant or at all) in respect of wrongs allegedly committed against the 1^st defendant. The 1^st defendant’s characterisation of the TP Claims as claims for “contribution” is therefore misconceived. Properly understood, the TP Claims are no more than ordinary claims for damages or equitable compensation for misrepresentation, breach of duty of care, and breach of fiduciary duty as between the 1^st defendant and the Firm alone.

73.  Similarly, there is no legal principle (and certainly no contractual provision) which would give the 1^st defendant a right of “indemnity” against the Firm on the present facts.

74.  It follows that the TP Claims are not claims for “contribution” or “indemnity”, and therefore fall outside the ambit of Order 16, rule 1(1)(a) RHC.

E2.  Claims relating to the original subject-matter of the action and seeking substantially the same relief or remedy as the plaintiff - O 16, r 1(1)(b) RHC

75.  Order 16, rule 1(1)(b) RHC allows a defendant to bring claims against a third party for “relief or remedy relating to or connected with the original subject-matter of the action and substantially the same as some relief or remedy claimed by the plaintiff” (emphasis added).

76.  As noted in paragraph 72 above, the TP Claims as set out in the TPN are claims for damages and/or equitable compensation. In distinct contrast, the plaintiff’s claims against the 1^st defendant are for (i) vacant possession of the Property, and (ii) repayment of the Indebtedness ie a debt claim.

77.  Whilst the TP Claims and the plaintiff’s claims against the 1^st defendant in the Main Action may arise from the same background facts and relate to the same subject matter, they clearly do not involve “substantially the same relief or remedy”.

78.  The TP Claims therefore do not fall within the ambit of Order 16, rule 1(1)(b) RHC either.

E3.  Claims involving issues relating to or connected with the original subject-matter of the action, which should be determined as between the plaintiff, the defendant and the third party - O 16, r 1(1)(c) RHC

79.  By the TPN, the 1^st defendant also seeks to have a number of issues (“Issues”) “determined not only as between [the plaintiff] and [the 1^st defendant] but also as between either or both them and [the Firm]”.

80.  This appears to be a reference to Order 16, r 1(1)(c) RHC, which allows a defendant to issue a third party notice where he “requires that any question or issue relating to or connected with the original subject-matter of the action should be determined not only as between the plaintiff and the defendant but also as between either or both of them and a person not already a party to the action”.

81.  In the present case, given that all of the TP Claims (with or without the proposed amendments in the Draft Re-Amended TPN) are time barred as against the Firm, there is no basis whatsoever for the 1^st defendant to require any of the Issues to be determined vis-à-vis the Firm.

82.  Given my view on the first two grounds relied on by the Firm to strike out or set aside the TPN, it is not necessary for me to make a finding on the third and remaining ground as set out in paragraph 2(1)(c) above.

F.  D1’s AMENDMENT SUMMONS SHOULD BE DISMISSED

83.  As the amendments proposed in the Draft Re-Amended TPN are clearly futile and do not remedy any of the defects, leave to amend should be refused and the Amendment Summons should be dismissed.

84.  Further, the new allegations of fraud are wholly unparticularised and without evidentiary foundation, and no more than a belated (and misconceived) attempt to enable the 1^st defendant to rely on section 26 LO to extend the time limitation period for the TP Claims: see paragraph 51(1) above.

G.  CONCLUSION

85.  For the reasons set out above, I hold that the Firm’s appeal should be allowed and Master KW Wong’s Orders should be set aside.

86.  I make an order in terms of paragraphs 1 to 4 of the Strike Out Summons, and to dismiss D1’s Amendment Summons, with costs to be paid by the 1^st defendant to the Firm.

87.  As to the proper basis for the taxation of costs, I take into account the matters set out at paragraphs 12 and 13 above. In the circumstances, I hold that it is appropriate to award indemnity costs against the 1^st defendant.

88.  Accordingly, I order that the costs payable by the 1^st defendant to the Firm be taxed on the indemnity basis if not agreed.

89.  Lastly, I express my gratitude to counsel on both sides for their helpful assistance in this matter.