Kan Wai Chung and Others v. Hau Wun Fai and Others

CACV 7/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 7 OF 2016

(ON APPEAL FROM HCA NO. 811 OF 2010)

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BETWEEN

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AND

(ON APPEAL FROM HCA NO. 868 OF 2013)

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BETWEEN

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(Actions HCA 811/2010 and HCA 868/2013 consolidated by the
 Order made by Master J Wong dated 18 November 2013)

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J U D G M E N T

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1.This is an application by the 1^st to 4^th defendants in HCA811/2010 and HCA868/2013 for security for costs of the plaintiffs’ appeal from a Judgment of To, J given on 8 December 2015 (“the Judgment”) in favour of the defendants on two preliminary issues. 

Background

2.Much of the relevant background can be seen from the judgement of this court (Chu, Lam and Barma JJA) in CACV43/2012 handed down on 7 February 2013.  However for present purposes, it may be convenient to summarize the salient facts as follows. 

3.Each of the plaintiffs was a male indigenous villager of the New Territories (commonly called a “ting”).  Under the government’s Small House Policy, a ting can apply to the government, once during his lifetime, for a licence to build a house for himself on concessionary terms.  I shall refer to the plaintiffs collectively as “the Tings”. 

4.In 1994, a developer (“the Developer”), comprising a number of joint venturers, entered into co-operation/development agreements (“the co-operation agreements”) with the Tings.  Under these agreements,

-  the Developer would acquire various lots of land in the New Territories,

-  the Developer would assign the lots to the Tings for no consideration, and the Tings would hold the land as bare trustees for the Developer,

-  the Tings, in exchange for instalment payments to be made by the Developer, would apply to the government for the right to build houses on those lots, and

-  the Developer would pay the construction costs of the houses, as well as the premiums payable to the government to enable the Tings to sell the properties (ie the lots with the houses built thereon) to end-purchasers.

5.In 1996, one of the joint venturers of the Developer dropped out.  This company was called Barbican Capital Investment Ltd (“Barbican”), whose director was one Tsang Wing Kei, Wilkie (“WT”).  Subsequently, another joint venturer was brought into the project.  However that was not the end of Barbican and WT’s involvement.

6.By 2005, the construction of ten properties were completed and ready for on-sale to end-purchasers.  The defendants, a firm of solicitors (“the Solicitors”) prepared Sale and Purchase Agreements for these on-sales (“the 1^st set of SPAs”). These documents were purportedly signed by the Tings or their purported attorneys, but that is disputed by the Tings.

7.Be that as it may, at about the same time (2005) the Tings, allegedly on WT’s instructions, executed another set of provisional agreements to sell the properties to Barbican.

The 2005 Actions between the Developers and the Tings and others

8.In 2005, the Developers sued the Tings, Barbican and WT in HCA1517-1521/2005 (“the 2005 Actions”). 

9.It suffices for present purposes to record that by an order of DHCJ Saunders made in August 2005 (“the Saunders Order”), the 1^st set of SPAs were completed with the end-purchasers, and the proceeds of $2.5m were paid to the Solicitors as stakeholders.

10.It should be noted that at that time, the Tings’ defence and counterclaim (filed in December 2005) was based on the assumption that the co-operation agreements with the Developer were valid.  The defence and counterclaim did not contain any allegation that the Tings themselves had any beneficial interests in the properties.  Their counterclaim was for monetary compensation under the co-operation agreements.

11.A few years later, in February 2009, the Developers made a claim for payment of the stakeheld funds (which Reyes J granted in September 2009).

The Tings’ aborted Third Party proceedings against the Solicitors

12.1.In February 2009, the Tings issued third party proceedings (without leave) against the Solicitors. 

12.2.However these third party proceedings were withdrawn later, with costs to the Solicitors, the Tings indicating that they would bring separate proceedings against them.

Settlement of 2005 Actions

13.1.In February 2010, the Tings applied to amend their defence and counterclaim.  Fung J gave leave in June 2010 to add a pleading that the co-operation agreements with the Developer were illegal, but refused to give leave to plead forgery of the 1^st set of SPAs.

13.2.Eventually however, in October 2010, the 2005 Actions were concluded with a “drop hands” settlement.

HCA811/2010 - The Tings’ 1^st action against the Solicitors

14.In June 2010, the Tings issued a fresh action against the Solicitors, alleging a conspiracy with the Developer to injure by unlawful means and malicious falsehood. 

15.By an order in February 2012, Poon J (as he then was) struck out the claim and dismissed the action on the ground of issue estoppel, alternatively that the proceedings were an abuse of the process in the Henderon v Henderson¹sense.  The Tings appealed.

CACV43/2012

16.1.In CACV43/2012, the court of appeal allowed the Tings’ appeal, essentially on the ground that the Saunders Order was interlocutory in nature, and thus not final, and the orders of Reyes J and Fung J referred to above were consistent with that understanding.  The issue whether the Tings were entitled to monetary compensation of the kind claimed in HCA811/2010 (damages for conspiracy and malicious falsehood) had not been finally determined previously, and accordingly issue estoppel was not engaged.

16.2.As for abuse of process in the Henderson v Henderson sense, the court held that the Tings had signaled their intention to bring third party proceedings against the Solicitors, and had in fact done so, although the procedure used was irregular.  Therefore they were not vexing the Solicitors twice in any real sense. 

16.3.The Tings’ appeal was thus allowed with costs at both levels.

HCA868/2013 - the Tings’ second action against the Solicitors

17.With that judgment in their favour, the Tings proceeded with HCA811/2010 and also commenced a second action (HCA868/2013) for wasted costs in relation to the 2005 Actions.  The defendants were the Solicitors and a former assistant of WT, through whom moneys allegedly changed hands.

The Developer as third party

18.The Solicitors brought in the Developer as third parties in both actions.  (In fact there are two third parties, by reason of the change in the identities of the joint venturers, but that is not material to this judgment and the singular term is used for ease of reference). 

Trial of preliminary issues

19.The trial of these two actions (consolidated by order dated 18 November 2013) was fixed to commence on 18 April 2016.

20.1.However in June 2015, the Solicitors applied to the court to determine two preliminary issues:

(1)  whether the plaintiffs have any interest in the properties, having regard to the uncontroversial facts that:

(i)   the land had been transferred to the Tings without consideration,

(ii)  the Developer had paid the construction costs of the houses,

(iii)  the Developer had paid the premium for sale to end-purchasers, and

(iv)  the Tings had declared that they held the lots on trust for the Developer;

(2)  whether the wasted costs in the 2005 Actions were caused by the Solicitors’ use of the 1^st Set of SPAs, which the Tings claim were “falsified” as not having been signed by them or with their authority.

20.2.The matter was heard by To, J on 30 September 2015.

To, J’s Judgment on preliminary issues

21.For reasons appearing in his Judgment dated 8 December 2015, the learned judge gave judgment for the Solicitors on both preliminary issues.

22.It would appear that that has put an end to both actions.  By an order made on 10 December 2015, To, J ordered that the Tings’ claims against the Solicitors in the two actions (HCA811/2010 and HCA868/2013) be dismissed with costs to be paid by the Tings to the Solicitors. 

23.By a notice of appeal filed on 14 January 2016 in CACV7/2016, the Tings appealed the Judgment.  The appeal is due to be heard on 30 June 2016.

The Solicitors’ application for security for costs of the appeal

24.1.On 2 February 2016 the solicitors asked the Tings to provide security for costs of the appeal in the sum of $2.1m.

24.2.On 22 March 2016, the Solicitors applied for security for costs of the Tings’ appeal in the same sum. Affirmations in support of, and in opposition to, the application were filed which I have read.  The Tings responded with an offer of $100,000. 

Discussion

25.I have also read and heard the respective submissions of Mr K M Chong for the Solicitors and Mr Francis Yip for the Tings.

26.The principles governing the court’s exercise of discretion in an application for security for costs on an appeal are well-known.  They have been set out extensively in Chung Kau v Hong Kong Housing Authority & Others²and I will not repeat them here.

27.First, I am satisfied that there exist “special circumstances” within the meaning of O.59 r.10(5) RHC in that the Tings appear to have had the need to rely on others to fund their litigation.  The Solicitors have provided evidence showing that the Tings’ legal costs have been paid by WT, who was made bankrupt in 2007.  That has not been challenged by the Tings.  Nor have they challenged the evidence that they cannot be reached at the addresses appearing in their witness statements.  I shall address the issue of mutual costs obligations later in this judgment. 

28.Pausing here, Mr Yip counsel for the Tings submitted that there are countervailing factors against ordering security in that, at least for the purposes of the trial of the preliminary issues, the following two special features are not disputed: (1) forgery of the 1^st set of SPAs and (2) illegality of the co-operation agreements. Mr Yip submits that had it not been for these features, the Saunders Order would not have been made for the sale of the properties to end-purchasers.

29.1.At this stage, it suffices for me to note that the Judgment was premised on any disputed facts being assumed in favour of the Tings (para. 5).  That included the two special features. The main rationale of the Judgment was that conspiracy was not actionable per se, and so in order to succeed on that cause of action, the Tings had to show (1) they had suffered loss and damage and (2) even assuming such loss and damage, a causal connection between the acts of the conspirators and the loss and damage suffered (para. 32). 

29.2.As the judge noted, the Tings’ right to apply for a licence to build a small house under the Small House Policy was a personal, not a proprietary, right.  In HCA811/2010 the Tings pleaded that they were registered owners of the lots, but as they had never paid any consideration for them, they never had any beneficial interest in the properties (para. 36).  It was not the Tings’ case that they were financially able to acquire land for themselves, such that they suffered loss and damage by utilizing their right to apply for licences for these lots under the co-operation agreements and not to land which they owned. 

29.3.At this stage therefore, I am not satisfied that the merits of the Tings’ appeal are such that I should exercise the court’s discretion in refusing an application for security for costs.

30.I now come to the issue of the parties’ mutual costs obligations which impact on

(a)  the issue whether the Tings come under the “special circumstances” of impecuniosity at all, and

(b)   even if so, the quantum of security.

31.As a result of the litigation history between the Tings and the Solicitors, each side has claims against the other on bills of costs.  Some bills have been taxed and some have not, and some have been paid in part.  It is therefore impossible to have a precise calculation but I am satisfied that even though the Tings have been awarded costs in resisting the strike-out (and the appeal therefrom), the total costs to which they would be entitled on taxation would be more than offset by the costs to which the Solicitors would be entitled now that the actions have been dismissed with costs in their favour.  I take into account the fact that both actions had reached the pre-trial review stage.  That, together with the undisputed evidence that their legal costs have been paid by WT, shows that there are “special circumstances” which justify an order of security for costs.

32.As for the quantum of costs, the sum sought by the Solicitors of $2.1m is completely unrealistic for party-and-party costs for a one-day appeal, especially when both counsel have been instructed below and would be familiar with the papers and arguments.  In my view, a sum of $400,000 would be appropriate.

Order

33.I would therefore make an order in terms of the summons filed on behalf of the 1^st to 4^th defendants on 22 March 2016 save that the sum of HK$2.1m in para.1 will be replaced by the sum of $400,000. 

Mr Francis Yip, instructed by Messrs Fung Wong Ng & Lam LLP Solicitors, for the Plaintiffs in HCA 811/2010 and HCA 868/2013

Mr K M Chong, instructed by Messrs Ho Tse Wai & Partners, for the 1^st to 4^th Defendants in HCA 811/2010 and HCA 868/2013

¹ (1843) 3 Hare 100

² [2004] 2 HKLRD 650