Tang Hong Yuen and Another v. 許明娥 and Another

DCCJ 547/2017

[2018] HKDC 1087

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 547 OF 2017

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Before: Deputy District Judge Y C Cheuk in Chambers (Open to the public)

Date of Hearing: 27 August 2018

Date of Judgment: 14 September 2018

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DECISION

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This appeal

1.This is an appeal from Master S H Lee's decision made on 16 May 2018 (the “Decision”) giving leave to the applicant to be joined as a party to these proceedings as the 2^nd defendant (referred to as the “2^nd defendant” hereinafter).  The 2^nd defendant also applies by summons dated 16 July 2018 for leave to file and rely on his new 3^rd affirmation for the purpose of this appeal.  As will be clear from the reasons below, I shall deal with the plaintiffs’ appeal before the 2^nd defendant’s application for leave to adduce new evidence.

2.The factual background is as follows.  Mr Cheung Yat Sun (“Mr Cheung”), the original landlord of Lot no 966 in Demarcation District no 83, New Territories, Hong Kong (the “Land”) rented the Land to the 1^st defendant by way of an agreement dated on or about 1 June 2011 for a term of 5 years between 1 June 2011 and 31 May 2016 at the monthly rental of HK$2,500 (the “2011 Tenancy Agreement”).

3.The 1^st defendant is the mother of the 2^nd defendant. According to the 2^nd defendant's case:-

(l) The 2011 Tenancy Agreement was subsequently superseded by another agreement between the 2^nd defendant and Mr Cheung in or about September 2012 (the “2012 Agreement”), whereby it was agreed, inter alia, that:-

(a) The 2^nd defendant shall pay Mr Cheung an upfront payment of HK$500,000 to purchase outright the structures on the Land;

(b) The 2^nd defendant shall continue to make monthly payment to Mr Cheung in the sum ofHK$5,000;

(c) The 2^nd defendant shall enjoy exclusive use of the Land until the Government's resumption of land (“政府收地為止”);

(d) The 2^nd defendant had the first option to purchase the Land before any other purchasers.

(2) The 2012 Agreement was recorded in writing and endorsed by the 2^nd defendant, Mr Cheung and 2 other witnesses.

(3) Pursuant to the 2012 Agreement, the 2^nd defendant did pay Mr Cheung a sum of HK$500,000 and continued to pay Mr Cheung monthly sums of $5,000 until about June 2016.

(4) The 2^nd defendant further expended HK$200,000 to renovate the structures on the Land.

(5) The 2^nd defendant moved in to live on the Land upon entering into the 2012 Agreement and operated a convenience store there until mid 2014.  Since then, the 2^nd defendant rented out various structures on the Land to other tenants.

(6) For the reasons above, the 2^nd defendant has been and is in possession of the Land (whether in actual possession or by a tenant) since 2012.  Further, he has acquired an interest in the Land pursuant to the 2012 Agreement and the plaintiffs’ acquisition of the Land, as will be explained more below, is subject to his interest therein.

4.Subsequent to the 2012 Agreement, on or about 19 December 2013, the 1^st plaintiff purchased the Land from Mr Cheung at the cost of HK$200,000.

5.On 20 July 2015, the 1^st plaintiff divided the Land into Lot 966A, 966B, 966C and 966RP.

6.On 27 July 2015, the 2^nd plaintiff purchased Lot 966B from the 1^st plaintiff at the cost of HK$100,000.

7.On 19 May 2016, the plaintiffs issued a letter to the 1^st defendant, informing her that the 2011 Tenancy Agreement would not be extended and requested for vacant possession when it expired on 31 May 2016.

8.The 1^st defendant did not respond.  The plaintiffs thus issued a Writ of Summons dated 7 February 2017 to her for vacant possession and mesne profits.  No Acknowledge of Service was filed.  As a result, the plaintiffs obtained a default judgment against the 1^st defendant on 9 June 2017.  The Writ of Possession was issued on or about 1 August 2017.

9.It is not disputed that the 2^nd defendant only came to know the existence of the court proceedings on or about 18 June 2017 (ie after the default judgment was entered against the 1^st defendant).

10.On 6 July 2017, the 1^st defendant, acting in person, appealed against the default judgment without leave.  The appeal was dismissed by the Court of Appeal on 18 August 2017.

11.The 1^st defendant applied for setting aside the default judgment.  Her application was dismissed by Master S H Lee on 31 January 2018.  On 15 February 2018, she appealed against Master Lee's decision. The appeal was heard before Deputy District Judge W H Wong on 30 April 2018 and at the time of this hearing, the result of that decision is still pending.

12.The 2^nd defendant took out a summons applying for leave to be joined on 6 February 2018.  Master S H Lee granted leave on 16 May 2018, from which the plaintiffs now appeal.

Legal principles

13.It is trite law that an appeal to a judge in chambers pursuant to Rules of the District Court, Order 58 rule 1, is dealt with by way of a re-hearing.  The judge will give weight it deserves to the previous decision of the Master but he is in no way bound by it.  See: Hong Kong Civil Procedure 2018, at §58/1/2.

14.The 2^nd defendant's application and the Master's Decision below was based on Order 15 rules 6 and 10, which provide that:-

“6(1) No cause or matter shall be defeated by reason of the misjoinder or nonjoinder of any party; and the Court may in any cause or matter determine the issues or questions in dispute so far as they affect the rights and interests of the persons who are parties in the cause or matter.

(2) Subject to the provision of this rule, at any stage in any cause or matter the Court may on such terms as it thinks just and either of its own motion or on application -

(b) order any of the following persons to be added as a party, namely-

(i) any person who ought to have been joined as a party or whose presence before the Court is necessary to ensure that all matters in dispute in the cause or matter may be effectually and completely determined and adjudicated upon, or

(ii) any person between whom and any party to the cause or matter there may exist a question or issue arising out of or relating to or connected with any relief or remedy claimed in the cause or matter which in the opinion of the Court it would be just and convenient to determine as between him and that party as well as between the parties to the cause or matter.

10(1) Without prejudice to rule 6, the Court may at any stage of the proceedings in an action for possession of land order any person not a par5' to the action who is in possession of the land (whether in actual possession or by a tenant) to be added as a defendant.

(2) An application by any person for an order under this rule may be made ex parte, supported by an affidavit showing that he is in possession of the land in question and if by a tenant, naming him.  The affidavit shall specify the applicant's address for service and Order 12, rule 3(2), (3) and (4) shall apply as if the affidavit were an acknowledgment of service.”

15.It is not disputed that the 2^nd defendant is entitled to make an application for joinder even after the judgment against the 1^st defendant had been obtained.  It is also not disputed that the court has a discretion in such an application.  The question is how the court should exercise such discretion.

16.Mr Samuel Yip, who appeared together with Mr Ivan Lee on behalf of the plaintiffs, submitted that in order to succeed, the 2^nd defendant must show that:-

(1) His absence in the previous proceedings was not due to wilful default; and

(2) He has a defence on the merits, which means “a real prospect of success”.

17.In contrast, Mr Tony Chow, who appeared on behalf of the 2^nd defendant, submitted that there is no such rigid test.  The reasons of an applicant’s absence in the previous proceedings and the merits of his case are only factors that the court can take into consideration in exercising his discretion.  The ultimate test is one of broader ground of “justice and convenience”  which is expressly provided in Order 15 rule 6(2)(b)(ii) and implicit in Order 15 rule 6(2)(b)(i) and 10.

18.Various cases were cited to me.  The starting point is the case Minet v Johnson [1886-90] All ER Rep 586.  In that case, the plaintiff served a writ upon one Johnson claiming possession of a house, and judgment was signed in default of appearance.  The sheriff, in pursuance of a writ of possession, ejected one Hartley, who was in possession of the house, and delivered up possession to the plaintiff.  Harley had no knowledge of the action, and did not claim to hold through Johnson.  Lord Esher M R held, at 587, that:-

“If Harley were a tenant of Johnson 's of course he must go out; therefore, to support his complaint now he must say that he had some independent right of his own. What then is his remedy? There has been a miscarriage of justice, and Hartley has a right to be heard, and he must be let in to assert his case.” [emphasis added]

19.Lindley L J also said, at 587, that:-

“On principle a person in actual possession ought to be made a defendant; but where this has not been done Ord 12, r 25[1]seems to me to point out what is the proper course of procedure.”

20.Their Lordships did not refer to any requirement of “no wilful default” or “a real prospect of success” of the applicant's case.  They appeared to consider that any person who was in possession of the land but not made a defendant in the proceedings for the recovery of the land should prima facie be allowed to be heard.  Otherwise, there would be a miscarriage of justice.

21.In contrast, in Yuen Ka Kwok v Ho Nai Sun [1980] HKLR 646, where the application for joinder was made after an order for possession had been made and the premises recovered by the landlord, Roberts C J said, at 647,

“The applicant, in order to succeed, must show firstly that his absence was not due to wilful default on his part and that he has a defence on the merits.”

22.However, it should be noted that the applicant in that case was an occupier of the premises and had actually given evidence at the trial.  The applicant's conduct was therefore close to, if not in fact amounting to, abuse of process.  As a matter of “justice and convenience”, it seems entirely correct that his application for joinder should be refused.

23.Yuen Ka Kwok was considered and explained in a subsequent Court of Appeal case Yu Wing-kan v Lau Shuk-lan [1990] 2 HKLR 583.  In particular, Cough JA said, at 591, that:-

“We accept that it may well be that in exercising its unfettered discretion whether to let in a party in proceedings and to set aside a judgment in so far as it affects that party, the circumstances may be such as to render wilful default of that party material (as in Yuen Ka-kowk's case) in addition to the question of merit but we are bound ultimately by the views expressed in Evans v Bartlam [1937] AC 473 (HL) to the effect that whilst the courts have laid down rules to guide themselves in the normal exercise of their discretion whether to set aside a default judgment, the jurisdiction. Even the rules of guidance may be departed from in rare but appropriate cases: see the dicta of Lord Atkin in Evans v Barlam at p 480 and the other citations from that authority and from The “Saudi Eagle” [1986] 2 Lloyd's Rep 221 (CA) which were recently applied by another division of this court in Bank of America National Trust and Savings Association v Graham Harry Fountain (Civil Appeal No. 156 of 1989 (unreported)) where a default judgment under Order 14 was set aside on the merits of the defence notwithstanding the absence of a reasonable excuse for the default.” [emphasis added]

24.It therefore appears to me that Clough JA did not regard Yuen Ka Kwok as laying down any rigid rules but only “material” factors to be considered in a joinder application.  His Lordship emphasized the courts' unfettered discretion in considering such an application.

25.Further, in Wing Hang Bank Ltd v Tsang Sze Yin (unreported, HCMP 1689/1998, 30 December 1999), a mortgage action case, Ribeiro J (as he then was) held, at pp 5-6, that:-

(l) The default judgment principles are not applicable to the situation where an intervener was neither named as a party to the original proceedings nor was she purported served with those proceedings, whether regularly or otherwise.

(2) A line of authorities, including Minet v Johnson, shows that the proper approach is for the person claiming the right to remain in possession to apply to be joined as a defendant and to have his claim tried as between himself and the purchaser or mortgagee claiming possession.

(3) “Those authorities do not suggest that the occupier may be denied the right to contest the entitlement of the purchaser or mortgagee unless he can first explain why he did not intervene before judgment was entered (against other defendants), or unless he can first satisfy the court that he has a real prospect of success in upholding his claim to an interest in the property entitling him to main in possession.”

(4) The onus rests on the plaintiff claiming possession.  He must generally establish his right against all occupiers who assert an adverse claim to possession and who are, or who seek to be, made parties with a view to establishing such claim.

26.In that case, the bank sought to enforce an order for possession of the flat presently occupied by the intervener.  His Lordship held, at p 6, that:-

"Before it can be allowed to do so, Madam Shing [i.e. the intervener] is at least prima facie entitled to be joined as a defendant for her claim to a beneficial interest in the property, allegedly binding on the bank, to be tested.  Only if she fails and the bank secures judgment for possession, not only against the Defendants, but also against Madam Shing, should the bank be permitted to enforce such order. " [emphasis added]

27.Wing Hang Bank Ltd was subsequently applied in Yu Fung Co Ltd v Olympic City Properties Ltd [2017] 2 HKLRD 406.  In particular, Deputy Judge Keith held, at paragraph 25, that:-

“Yu Fung contends that Madam Cheung's claim that she has a right to occupy the Flat is bound to fail. Its case is that on any view of the facts she occupied the Flat as Mr Lai's licensee and not in her own right. It is said that if she was merely his licensee, her occupation of the Flat could not have amounted to adverse possession ... The answer to that is what Ribeiro J said at [10] in his judgment in the Wing Hang Bank case, namely that the authorities he had just cited:

… do not suggest that the occupier may be denied the right to contest the entitlement of the purchaser or mortgage unless he can first satisfy the court that he has a real prospect of success in upholding his claim to an interest in the property entitling him to remain in possession.

Indeed, he went on to say at [15] that there was not any “threshold” test of arguability before Madam Shing should be allowed to have her substantive property rights determined, let alone one in which Madam Shing had to satisfy the Court that she had a real prospect of success in establishing her claim. It is true that he went on to consider the merits of her claim, but that was only because he had been addressed on them, not because he had to decide where the merits lay in order to dispose of the summons properly. It follows that whatever the merits of Madam Cheung's claim she is not prevented from pursuing it.”

28.Mr Chow however accepted that it was not his case that merits are completely irrelevant in a joinder application.  If a case is plainly frivolous, hopeless or amounting to an abuse of process, it will be a relevant factor to be taken into account in the court's exercise of discretion on “justice and convenience” ground.

29.After reviewing the above authorities, in my judgment, the 2^nd defendant's contention is right.  While any wilful default or “a real prospect of success” of an applicant’s case is a relevant factor to be taken into account in a joinder application pursuant to Order 15 rules 6 and 10, they are not rigid requirements as if an applicant must pass through those 2 hurdles separately before he can succeed. For an application involving wilful default, it is conceivable that the applicant will have a heavy burden to demonstrate the merits of his defence and other relevant circumstances before he can be allowed to intervene.  On the other hand, in respect of an bona fide applicant who has no knowledge of the previous proceedings, there seems no reason why he must demonstrate “a real prospect of success” before he is entitled to be heard.  In my judgment, the ultimate test is one of “justice and convenience” and it is this test that I will apply to the present case.

Application of the legal principles

Reasons for not participating in the previous proceedings

30.In the present case, as explained above, there is no dispute that the 2^nd defendant only came to know the existence of these proceedings on or about 18 June 2017, ie after default judgment was entered into against the 1^st defendant on 9 June 2017.

31.Afterwards, the 2^nd defendant explained that he went about asking friends and relatives for advice.  He was told that he could apply for legal aid, which he did in or about October 2017.  The application was however refused on or about 22 December 2017.  Immediately afterwards, he reached out to his present legal representatives to seek their assistance in preparing his case.  He made the joinder application on 6 February 2018.

32.Mr Yip’s only complaint was that it took the 2^nd defendant more than 4 months to apply for legal aid after he had notice of these proceedings.  It however seems only natural to me that after receiving notice, the 2^nd defendant would take time to ask around before he could decide what to do.  The 2^nd defendant being a layman, it does not appear to me that 4 months was entirely unreasonable and certainly does not amount to any “wilful default”.

Merits

33.Mr Yip and Mr Chow agreed that the central issue is whether the 2^nd defendant can ultimately establish fraud in previous transaction between the 1^st plaintiff and Mr Cheung and set aside that transaction.  If the 2^nd defendant cannot do so, Mr Chow accepted that whatever the 2^nd defendant's interest in the Land as obtained from Mr Cheung (which is unregistered), such interest would be subject to the plaintiffs’ interests (which has been duly registered).  See: sections 3(2) and 4 of the Land Registration Ordinance (Cap 128).  On the other hand, if the 2^nd defendant can ultimately establish fraud, Mr Yip accepted that the plaintiffs will have no basis to enforce their default judgment and Writ of Possession against the 2^nd defendant.

34.In this regard, the 2^nd defendant relies upon the following evidence:-

(1) In or about May 2016, the 1^st plaintiff got in touch with the 1^st defendant and informed her that he had already purchased the Land from Mr Cheung.  He also told the 1^st defendant that he knew that Mr Cheung sold the structures on the Land to the 2^nd defendant.  He further informed the 1^st defendant that there was no need to continue paying rent to Mr Cheung.  The 1^st plaintiff was minded to purchase the 2^nd defendant's entire interest in the Land and asked the 1^st defendant to make a proposal as to the compensation from vacating the Land. The 2^nd defendant was shocked when he learned of this from the 1^st defendant because they were never told by Mr Cheung that he was going to sell the Land.  The 1^st defendant immediately contacted Mr Cheung on the 2^nd defendant's behalf enquiring the matter.  During the telephone conversation between them, Mr Cheung told the 1^st defendant that he did not sell the Land.  The phone was suddenly picked up by a woman and she asked what was going on.  After the 1^st defendant asked why the Land was sold without notifying them, she cut off the line immediately.  Some days after that telephone conversation, the 1^st defendant called Mr Cheung again.  A man who claimed to be Mr Cheung’s son told the 1^st defendant that the Land was sold and asked her not to call Mr Cheung again.

(2) Despite their knowledge about the defendants’ interest in the Land, the plaintiffs never sought to request for the payment of rent from either of the defendants since the alleged purchase on 19 December 2013.  Further, the plaintiffs deliberately chose not to join the 2^nd defendant in these proceedings in the first place.

(3) The 1^st plaintiff did not register any sale and purchase agreement in relation to the transfer of the Land from Mr Cheung by an assignment dated 19 December 2013.

(4) In response to the above allegations, the plaintiffs only barely denied their knowledge of the existence of the 2^nd defendant interest in the Land before the default judgment on 9 June 2017.  The above circumstances call into question whether Mr Cheung actually sold the Land to the 1^st plaintiff with proper knowledge and consent.

35.Mr Chow fairly admitted that there would be further investigation work to do before the 2^nd defendant can establish fraud.  What he submitted, however, was that the 2^nd defendant had only had legal representation since about January 2018 and their investigation was still on-going.  After the 2^nd defendant was joined in the proceedings, he would be able to further his investigation work by, for example, applying for discovery, against the plaintiffs (or even Mr Cheung).  What the court should not do is to shut out the 2^nd defendant’s case at the stage of application for joinder prematurely and refuse to give him an opportunity to be heard.

36.On the other hand, Mr Yip submitted that the 2^nd defendant's purported evidence was nebulous.  It would be just a waste of time to allow them to be joined in these proceedings.

37.After considering these submissions, while I agree that the 2^nd defendant's evidence at this stage is not particularly strong, it would be premature to dismiss their claim now and not to afford them an opportunity to be heard.  If the 2^nd defendant's subsequently investigation does not bear fruit, it will always be up to the plaintiffs to apply for summary judgment in due course.

38.For the reasons above, as a matter of justice and convenience, I consider that the 2^nd defendant should be joined in these proceedings so that all of the relevant issues relating to the Land can be resolved together.

The 2^nd defendant's application for adducing new evidence

39.For the reasons above, the 2^nd defendant's application for leave to adduce new evidence will not have any impact on the present appeal. However, as submissions have been made to me, I will also deal with this issue below.

40.Order 58 rule 1(4) of the Rules of the District Court (Cap 336) provides that:-

“No further evidence (other than evidence as to matters which have occurred after the date on which the judgment. order or decision was given or made) may be received on the hearing of an appeal under this rule except on special grounds.” [emphasis added]

41.The new evidence that the 2^nd defendant intends to adduce is a video showing his visit to Mr Cheung's home after the Decision of Master Lee, in which someone present with Mr Cheung told him that Mr Cheung did not sell the Land.

42.Mr Yip submits that the new evidence does not fall within the meaning of “evidence as to matters which have occurred after the date on which the judgment, order or decision was given or made” and therefore requires “special grounds”.  In this regard, it is not in dispute that those special grounds refer to the requirements as set out in Ladd v Marshall [1954] 1 WLR 1489 to be satisfied.

43.Mr Yip's main contention is that the word “matters” in the aforesaid rule should be interpreted as “issues”.  Therefore, unless the subject evidence is related to new “issues” arising after the relevant judgment, order or decision, the requirements in Ladd v Marshall have to be satisfied.  Mr Yip argues that the purpose of the aforesaid rule is to curb the undesirable practice before the Civil Justice Reform when parties sought to adduce a further round(s) of evidence on appeal after an unfavourable decision from a Master and to achieve finality.

44.Mr Yip's argument, however, is inconsistent with the natural language of the aforesaid rule.  As pointed out by Mr Chow, the natural language suggests that the word “matters” simply refers to “factual occurrences”. Further, if “matters” means “issues”, the words in the bracket will be unlikely to have any real application.

45.Mr Chow further points out that Order 59 rule 10(2) has a similar provision that:-

"The Court of Appeal shall have power to receive further evidence on questions of fact, either by oral examination in court, by affidavit, or by deposition taken before an examiner, but no such further evidence (other than evidence as to matters which have occurred after the date of trial or hearing) shall be admitted except on special grounds. " [emphasis added]

46.The words in the bracket “enables the court to be informed, for example, of the subsequent history of the plaintiff's injuries or her remarriage shortly after the trial”.  See: Hong Kong Civil Procedure 2018, at §59/10/13.

47.It therefore seems to me that Mr Chow's interpretation is correct.  The word “matters” in the bracket refers to “factual occurrences” rather than “issues” in the case.  Accordingly, the new evidence of the 2^nd defendant falls within the exception as stated in the bracket and the requirements in Ladd v Marshall do not apply.

48.In Huges v Singh, The Times, April 21, 1989, as cited in Hong Kong Civil Procedure 2018, at §59/10/13,the English Court of Appeal considered the authorities in relation to admission of fresh evidence of matters which occurred after trial and held:

“(1) The Court of Appeal has a wide discretion in relation to admitting such fresh evidence, but it should always be exercised sparingly with due regard to the need for finality in litigation.

(2) It is impossible to produce an exhaustive list of the considerations relevant to the exercise of that discretion, but the following factors will always be material –

(i) The extent to which the fresh evidence may affect the award of damages; the greater the extent the more likely and ready the Court of Appeal should be to admit the evidence.

(ii) The time element; it is not necessary that the fresh evidence should emerge before the case would ordinarily reach the Court of Appeal, but the closer to the date of trial the more likely it is that the evidence will be admitted.

(iii) The conduct of the parties; any inequitable conduct on the part of a litigant will plainly be relevant, and other conduct may also be relevant.

(3) The evidence should be admitted in all cases where it would be an affront to one's sense of fairness not to admit it.  In applying that test the court takes into account all the circumstances, before, during and after trial.”

49.In the present case, I note that the 2^nd defendant could have visited Mr Cheung and collected similar evidence before the Decision.  The subject video only confirms an issue already raised in his original evidence and does not add a lot to the totality of the 2^nd defendant's case.  In the circumstances, to ensure finality in the litigation, I decline the 2^nd defendant's application.

Conclusion

50.For the reasons above, I dismiss the plaintiffs’ appeal.  There be a costs order nisi that:-

(1) The plaintiffs shall pay the 2^nd defendant’s costs of this appeal, to be taxed if not agreed;

(2) The 2^nd defendant shall pay the plaintiffs’ costs of the application for leave to adduce new evidence, to be taxed if not agreed; and

(3) There be a certificate for counsel.

51.The costs order nisi shall become absolute in the absence of any application to vary within 14 days from the date of this judgment.

52.It remains for me to thank counsel for their assistance.

Mr Samuel Yip, leading Mr Ivan C H Lee, instructed by Leung Kin & Co, for the 1^st and 2^nd plaintiffs

Mr Tony H H Chow, instructed by Cheng, Yeung & Co, for the 2^nd defendant