To Kwan Ho and Another v. Deputy Registrar of the High Court

HCAL 895/2019

[2021] HKCFI 874

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTITUTIONAL AND ADMINISTRATIVE LAW LIST NO 895 OF 2019

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BETWEEN

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D E C I S I O N

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INTRODUCTION

1.In this application for leave to apply for judicial review, the 1^st and 2^nd Applicants seek to challenge the decision of Deputy Registrar Lui of the High Court (“the Deputy Registrar”) on 4 January 2019 in Legal Aid Appeal Nos. 1580 and 1581 of 2018 (“the LAA Decision”).

2.The Deputy Registrar in the LAA Decision dismissed the Applicants’ appeals (“the Appeals”) against the decisions of the Director of Legal Aid (“the Director”) on 10 October 2018 refusing to grant legal aid to the Applicants to set aside a default judgment dated 26 February 2018 in DCCJ 5444/2009 (together “the Legal Aid Decisions”).

3.On 3 April 2019, the court directed that there should be a rolled-up hearing of the application for leave to apply for judicial review and the substantive application for judicial review.  The rolled-up hearing took place before me on 10 December 2019.

4.For reasons which I shall explain below, the application for leave to apply for judicial review is reasonably arguable and has a realistic prospect of success, and granting such leave I allow the application for judicial review on the ground of Wednesbury unreasonableness.

BASIC FACTS

5.In March 2002, the 1^st Applicant borrowed a non-means-tested loan of HK$46,000 (“the Loan”) from the Government’s Student Financial Assistance Agency (“the SFAA”) to finance her studies of a diploma course at the Caritas Adult and Higher Education Service Centre (“the Centre”). In order to apply for the Loan, she was required to sign a written undertaking, which she did on 17 March 2002 (“the Undertaking”).

6.By Clauses 1 and 2 of the Undertaking, the 1^st Applicant undertook to repay the Loan together with interest and annual administrative fees to the Government of the HKSAR when she ceased to be a student of the Centre. By Clause 8, the 1^st Applicant undertook to immediately notify the SFAA in writing of any change in her or her guarantor’s address. The address provided by the 1^st Applicant in the Undertaking was a residential flat at Tsz Ching Estate, Tsz Wan Shan, Kowloon (“the Tsz Wan Shan Address”).

7.On the same day of 17 March 2002, the 2^nd Applicant, who was the 1^st Applicant’s boyfriend, signed a deed of indemnity (“the Indemnity”) agreeing to indemnify the Government if the 1^st Applicant was in default of the repayment of the Loan.  He too also undertook to notify the SFAA in writing immediately upon any change of his address. The address provided by the 2^nd Applicant in the Indemnity was a property owned by him at Shanghai Street, Kowloon (“the Shanghai Street Address”).

8.In 2003, the 1^st Applicant ceased to be a student of the Centre.

9.On 15 October 2008, the 2^nd Applicant entered into a sale and purchase agreement to sell the property at the Shanghai Street Address.  The agreement was registered in the Land Register the following day on 16 October 2008.

10.In 2009, the 1^st and 2^nd Applicants moved to Central. There was evidence that the 2^nd Applicant took out a tenancy agreement commencing from 27 October 2009 at an address in Li Yuen Street West, Central, Hong Kong.

11.Neither of the Applicants had given any notice of change of address to the SFAA in accordance with the Undertaking or the Indemnity.  

12.On 30 December 2009, the Secretary of Justice (“the SJ”) issued a writ with action number DCCJ 5444/2009 against the Applicants for a debt of HK$69,549.80, being the balance of the outstanding Loan principal, the accrued interest, and annual administrative fees, due from 1 January 2004 up to 29 December 2009 (“the Writ”). 

13.In the Writ, the SJ averred, inter alia, that:-

(1)  upon cessation of her studies, the 1^st Applicant should repay to the Government the full amount of outstanding Loan and interest in one lump sum or by way of 40 equal quarterly instalments within a period of 10 years, commencing on 1 January 2004;

(2)  19 demand notes and reminders had been issued by the SFAA to the 1^st Applicant requiring her to settle the 5^th to 23^rd quarterly instalments from December 2004 to April 2009;

(3)  the 1^st Applicant had failed to pay any of the outstanding quarterly instalments;

(4)  by letters dated 26 June 2009 to the 1^st Applicant and the 2^nd Applicant, the Department of Justice (“DoJ”) demanded the immediate payment of the outstanding Loan together with annual administrative fees, interest arrears, overdue surcharge (if any), interest loss, and recovery costs pursuant to the Undertaking and to the Indemnity respectively;

(5)  the Applicants have failed to pay the outstanding Loan, related annual administrative fees and interest arrears, in breach of the Undertaking and the Indemnity.

14.On 8 January 2010, the Writ was served on the Applicants by inserting true copies thereof through the letter box of the Shanghai Street Address. As mentioned above, the Applicants had by then moved to Central. In fact, the 2^nd Applicant had already sold his property at the Shanghai Street Address.

15.No notice of intention to defend was given by the Applicants.  On 26 February 2010, the SJ obtained default judgment in DCCJ 5444/2009 against the Applicants (“the Default Judgment”).

16.It was not until 29 June 2018 that the DoJ sent a letter to the 2^nd Applicant enforcing the Default Judgment.

17.On 18 and 27 July 2018, the 1^st Applicant and the 2^nd Applicant respectively applied for legal aid to set aside the Default Judgment.  On an Update Information Form dated 27 July 2018 signed by the 2^nd Applicant, he stated that he agreed to return the HK$46,000 loan, but would dispute the interest and additional fees. 

18.On 10 October 2018, the Director refused both legal aid applications and provided written reasons for his decisions (viz. the Legal Aid Decisions) on 13 December 2018.

19.The Applicants on 6 November 2018 lodged the Appeals against the Legal Aid Decisions in HCLAA 1580 and 1581 of 2018.  The Appeals were heard and dismissed by the Deputy Registrar on 4 January 2019 (viz. the LAA Decision).

20.On 2 April 2019, the Applicants took out the present application for leave to apply for judicial review to quash the dismissal of the Appeals by the Deputy Registrar.  The only ground advanced in support of the application was that “the [Deputy Registrar] acted Wednesbury unreasonable [sic] in dismissing the Applicants’ appeal despite acknowledging that the Applicants have reasonable prospect (if not virtual certainty) of success in setting aside the Default Judgment”.[1]

THE LAA DECISION

21.In summary, the Deputy Registrar held in the LAA Decision as follows:-

(1)  Although the Applicants did have a very high chance of success in setting aside the Default Judgment, that was only one of the considerations in determining their applications for legal aid.

(2)  Amongst the list of factors in section 10(3) of the Legal Aid Ordinance, Cap. 91 (“the Ordinance”), it is important to also consider whether the circumstances of the whole case were such that it would be unreasonable to grant legal aid (viz. section 10(3)(c)).

(3)  One relevant consideration was the issue of costs. Even if the Default Judgment were to be successfully set aside, given the conduct of the Applicants, there was a very high chance that the court would refuse them costs, or would reserve costs until final judgment by ordering costs in the cause.

(4)  The Deputy Registrar also considered that there were several possibilities for final judgment.  The first was whether or not the original case would continue.  The second was if the original case could not be continued, whether a new case would be commenced to continue the claim against the Applicants.

(5)  The Deputy Registrar went on to find that if either possibility was likely, then the chance of a successful defence by the Applicants would be extremely low.  He reasoned that the evidence suggested that the 1^st Applicant had indeed borrowed money from the SFAA which had never been repaid, and the 2^nd Applicant being the guarantor had also not made any repayment.  On the evidence, the Deputy Registrar failed to see any reasonable chance of a defence being successfully mounted to oppose the claim.

(6)  The Deputy Registrar acknowledged that a defence of undue influence had been suggested (vis-à-vis the 2^nd Applicant), but he held that on the evidence before him that was not a defence with a reasonable likelihood of success.

(7)  In summary, the Deputy Registrar found that, firstly, the costs of setting aside the Default Judgment may not be recovered by the Applicants, and secondly, even if the Default Judgment were set aside, continuing on there was a high chance the Applicants would not succeed.

(8)  The Deputy Registrar opined that ultimately, there was a chance the public funds of the Legal Aid Department would be wasted.

(9)  The Deputy Registrar concluded that in the circumstances, considering the background facts of the case, this was not a reasonable case in which to grant legal aid. 

(10)  He therefore dismissed the Applicants’ Appeals against the Legal Aid Decisions.

THE GROUND OF REVIEW

22.Mr So for the Applicants submitted that the decision of the Deputy Registrar to dismiss the Applicants’ Appeals in the LAA Decision was Wednesbury unreasonable.  His arguments ran as follows.

23.First, the Deputy Registrar erred in law in suggesting that the District Court would not be minded to grant costs to the Applicants despite the Default Judgment being set aside.

24.Second, the Deputy Registrar neglected the fact that even if the District Court were to grant costs in the cause or impose other conditions on the costs order, both Applicants could still recover the costs incurred in setting aside the Default Judgment.  If the Default Judgment were set aside:-

(1)  As against the 1^st Applicant:-

(a)  The SJ would not be able to renew the Writ under Order 6 rule 8 of the Rules of the District Court (Cap. 336H) (“RDC”), nor under Order 2 rule 1 and Order 3 rule 5 of the RDC.

(b)  The SJ would be time-barred from commencing a new cause of action against the 1^st Applicant.

(2)  As against the 2^nd Applicant, whilst the Writ could be renewed under Order 2 rule 1 of the RDC, the 2^nd Applicant could rely on the defence of undue influence, given the relationship he had with the 1^st Applicant, the education level of the 2^nd Applicant, and that the 2^nd Applicant did not know the true meaning of the Indemnity.

25.Third, the reason provided by the Deputy Registrar for dismissing the Appeals – namely, that public funds would be wasted, was arbitrary and therefore Wednesbury unreasonable.  Mr So argued that this essentially amounted to the same reason as that given by the Deputy Registrar concerning the costs of the setting aside of the Default Judgment.[2]  Based on this premise, Mr So went on to submit that the Deputy Registrar had dismissed the Applicants’ Appeals for the sole reason of costs, and any decision based solely on costs was Wednesbury unreasonable.

26.For obvious reasons, Mr So did not challenge the Deputy Registrar’s finding that the Applicants have a high chance of success in setting aside the Default Judgment. 

RESPONDENT’S SUBMISSION

27.Ms Fung for the Director submitted that the Applicants’ challenges are not reasonably arguable, for the following reasons.

28.First, the Applicants had never disputed their liability to repay the Loan.  In particular, the 2^nd Applicant had even confirmed his agreement to repay the Loan in his application for legal aid on 27 July 2018 and he had not raised any defence of undue influence previously.

29.Second, the Applicants’ conduct was unreasonable in failing to notify the SFAA of their changes of address when they had undertaken in the Undertaking and in the Indemnity to do so.  Although service of the Writ was indeed problematic, the fact remains that the SFAA would never have been able to effect good service of the Writ given the Applicants’ unreasonable failure to give due notification of the changes of address.  It would be unreasonable for the Applicants to be able to evade a contractual liability and “take advantage of a tactical point” when they had failed to abide by the terms of their agreements in the first place.

30.Third, even if the Applicants could succeed in setting aside the Default Judgment, the SFAA can apply to renew the Writ under Order 6 rule 8, or Order 2 rule 1 and Order 3 rule 5 of the RDC, and re-serve the Writ on the 1^st and/or 2^nd Applicants as appropriate.  Alternatively, the SFAA could commence new proceedings against the Applicants who could in principle plead a time limitation defence which, Ms Fung argued, would be unmeritorious.

31.Fourth, Ms Fung sought to emphasise that the Applicants’ legal aid applications, legal aid appeals, and the present application for judicial review were all advanced to pursue their self-interest, namely, to evade their contractual liability to repay the Loan.

32.In conclusion, Ms Fung submitted that, having regard to all the circumstances of the case, it was “unreasonable” to grant legal aid (which is public funds) to the Applicants to set aside the Default Judgment and for them to evade their contractual liability to repay the Loan (which is also public funds).  The grant of legal aid would not serve any useful purpose.  The Director and the Deputy Registrar had fairly and reasonably exercised the discretion under section 10(3)(c) of the Ordinance.

THE LEGAL PRINCIPLES

Nature of a judicial review of a legal aid appeal decision

33.A legal aid appeal is in the nature of a de novo hearing of the legal aid applications: see Xu Fangwen v Deputy Registrar of the High Court HCAL 1853/2019 (unrep., 20 September 2019) at §19 (per Chow J).

34.On the other hand, a judicial review of the legal aid appeal decision is of a different nature.  As summarised by Chow J in Xu Fangwen at §20:-

“(1) ‘A judicial review application is not an appeal from either the Director or the Master’s Decision. The court in a judicial review is concerned with legality and not with merits. Relief will only be granted if the applicant can demonstrate that the Director has committed an error of law, or has acted Wednesbury unreasonably in arriving at the conclusion’ (see Chung Yuk Ying v Registrar of the High Court [2013] 5 HKLRD 78, at paragraph 11 per Queeny Au-Yeung J; Wong Chun Tak v Registrar of the High Court [2015] 3 HKLRD 449, at paragraph 17 per Queeny Au-Yeung J).

(2) ‘In a judicial review of the decision of a master in a legal aid appeal, as in the case of a judicial review of other administrative decision, the court is not sitting as a further tier of appeal. The court’s function is confined to review the legality, rationality and fairness of the process’ (see Chan Chiu Kwan v Registrar of the High Court [2015] 1 HKC 533, at paragraph 8 per Lam VP).”

35.Accordingly, it is not my function, sitting as a judge on a judicial review, to re-examine the Deputy Registrar’s decision afresh.  Nor is it my function to consider whether I would have granted legal aid to the Applicants to assist them in setting aside the Default Judgment.

36.The Applicants’ application for leave to apply for judicial review is in respect of the LAA Decision.  I am not reviewing the Director’s Legal Aid Decisions. 

37.Accordingly, insofar as the Director has sought to furnish further justifications to this Court for substantiating the unreasonableness of granting legal aid to the Applicants which were not contained in the LAA Decision, such justifications cannot be used to support the Deputy Registrar’s reasoning.

38.I therefore cannot accept Ms Fung’s reliance on the argument that “it is unreasonable for the Applicants to be able to evade a contractual liability and take advantage of a tactical point, when they had failed to abide by the terms of their agreement”[3]. The Deputy Registrar did not state in the LAA Decision that he found the Applicants’ applications for legal aid to be unreasonable because the Applicants had not informed the SFAA of their changes of address.  The only reference the Deputy Registrar made in his decision to the conduct of the Applicants was when he stated that due to their conduct, the court would have a high chance of refusing the Applicants their costs.  In my view, it is not open to me to find that the LAA Decision was not Wednesbury unreasonable for the further reason proffered by Ms Fung.

Wednesbury unreasonableness

39.A decision is Wednesbury unreasonable if the decision-maker does not consider matters which he is bound to consider, or does not exclude from his consideration matters which are irrelevant to what he has to consider, or if the decision is so unreasonable that no reasonable authority could ever have come to it: Associated Provincial Picture Houses Limited v Wednesbury Corporation [1948] 1 KB 223 at 229-230 (per Lord Greene MR).

40.Where a factor can be properly taken into account, the question of what weight is to be given to it is a matter within the province of the decision maker. What factors he is bound to take into account is determined by construing the statute conferring the power: Waddington Ltd v Securities and Futures Commission [2018] HKCFI 2544 (per Au J).

41.As Wednesbury unreasonableness is assessed against the ultimate decision made, one must determine whether any analytical defects, legal or otherwise, are sufficiently serious to render the LAA Decision a conclusion so unreasonable that no reasonable person acting reasonably could ever come to it: Wednesbury, supra, at 234.

42.Irrationality may also be inferred from the absence of adequate and intelligible reasons: De Smith’s Judicial Review (8^th Ed., 2018) at §11-034.  What would amount to adequate reasons depends on the context in which the decision maker is operating and the circumstances of the case: Oriental Daily Publisher Ltd v Commissioner for Television and Entertainment Licensing Authority (1997-98) 1 HKCFAR 279, per Li CJ at 290J-291A. Generally, the reasons given should show why a tribunal has come to its decision. There may not be any need however to address every single issue. But the reasons should show that the issues that arise for serious consideration have been considered. Further, the reasons may not require great elaboration and they may be brief: Oriental Daily, supra, 291D, F. These general principles have been applied in the context of a decision made by an Appeal Tribunal in Chow Oi Tong Amy v Hong Kong Housing Authority & Anor [2020] HKCFI 1163, §§27-30.

43.Finally, where the ground of judicial review relied upon is Wednesbury unreasonableness, the threshold for intervention is necessarily a high one.

Section 10(3)(c) of the Ordinance

44.The Director may grant an applicant legal aid if the means test and the merits test are satisfied.  Sections 10(1) and 10(2) of the Ordinance set out the means test concerning the financial resources of the applicant.  In the present case, there is no question of the Applicants having failed to satisfy the means test.

45.The merits test is contained in section 10(3) of the Ordinance, which provides that the applicant shall not be granted legal aid unless he shows that he has reasonable grounds for taking, defending, opposing, continuing or being a party to the proceedings for which he has applied for legal aid.  In addition to this merits test, section 10(3)(a)-(g) lists further considerations that may allow the Director to refuse legal aid.

46.In particular, section 10(3)(c) of the Ordinance provides:-

“(3)  A person shall not be granted a legal aid certificate in connection with any proceedings unless he shows that he has reasonable grounds for taking, defending, opposing or continuing such proceedings or being a party thereto, and may also be refused legal aid where it appears to the Director that—

(c)  it is unreasonable that the applicant should be granted legal aid in the particular circumstances of the case”

47.In the commentary in Legal Aid in Hong Kong (2006) issued by Legal Aid Services Council, at 119-120, it is explained that:-

“The ‘reasonableness’ test in section 10(3)(c) above is a wide and general test under which the Director can take into account all the factors which would influence a private client considering taking proceedings. It is additional to the legal merits test. One particular aspect of the ‘reasonableness’ test involves consideration of whether the benefits to be obtained in any proceedings justify the likely costs, one of the most important factors for a private client considering litigation. The question for the Director is whether the game is worth the candle. Legal aid will not normally be granted where the applicant will gain no real benefit from the proceedings, or where it is unlikely that any judgment obtained could be enforced. In other words, the Director must constantly bear in mind the need to protect the legal aid fund. In considering whether it is reasonable in the circumstances of a case to grant legal aid despite its obvious legal merits, the Director should take account of the following considerations: (a) the value of the benefit sought by the applicant, bearing in mind that benefit in this context is not confined to financial benefits but includes matters such as personal right, status, reputation and dignity of the applicant; (b) the chances of succeeding in obtaining that benefit in the practical sense; and (c) the costs of doing so.” (emphasis in original)

48.In McTear v Scottish Legal Aid Board [1997] SLT 108, a widow sought judicial review of a decision of the Scottish Legal Aid Board to refuse to grant her legal aid to continue an action against a tobacco company begun by her late husband who died of lung cancer. The action sought damages in relation to the tobacco company’s alleged failure to warn cigarette purchasers of the health risks from smoking.  Section 14(1)(b) of the Legal Aid (Scotland) Act 1986 provided that civil legal aid shall be available to a person if it appears to the legal aid board that, in addition to the relevant merits test, “it is reasonable in the particular circumstances of the case that he should receive legal aid”.   

49.In reaching its decision, the legal aid board considered: (i) the potential cost of granting the legal aid application, (ii) the possible benefit to be gained by the applicant, and (iii) the board’s own assessment of the prospects of the applicant’s success in the action.  Lord Kirkwood at 118F-G agreed that these were all matters for the board to determine in considering whether or not to make legal aid available to the applicant.  

50.The Court went on to hold that the board had taken into account each of the above considerations and had reached conclusions on each that it was entitled to reach.  The board did not take into account any irrelevant matter or fail to consider any relevant matter.  Moreover, it had properly exercised its discretion in weighing the relevant considerations.  Its decision was not one which no board acting reasonably could have reached.  Therefore, the Court concluded that the board had not acted irrationally or unreasonably in finding that it would not be reasonable to hazard what was certain to be a substantial amount of public money on a case with such limited prospects of a worthwhile return.

51.Turning back to the exercise of the discretion under section 10(3)(c) of the Ordinance, in light of McTear and the statutory framework of the Ordinance, I find that (i) the costs to the Legal Aid Department of granting the legal aid application, (ii) the possible benefit to be gained by the Applicants, and (iii) the prospects of the Applicants’ success in obtaining that benefit; are all relevant matters to be considered.

52.Mr So also made an ancillary point about the exercise of discretion under section 10(3)(c) of the Ordinance.  He pointed out that section 10(3)(c) of the Ordinance was introduced in the Legal Aid (Amendment) Bill 1984 along with the Supplementary Legal Aid Scheme (“the Supplementary Scheme”), which targeted the “sandwich class”, namely those persons with financial resources below certain limits but above those for eligibility under the Ordinary Legal Aid Scheme (“Ordinary Scheme”).  He argued that the legislature had in mind that section 10(3)(c) of the Ordinance should be exercised primarily against applications under the Supplementary Scheme, and those under the Ordinary Scheme were subjected to a more stringent means test and had scarcer financial resources than those under the Supplementary Scheme. Therefore, it was submitted that the discretion under section 10(3)(c) should be exercised more sparingly and with more restraint when dealing with applicants under the Ordinary Scheme (such as the Applicants) as opposed to the Supplementary Scheme.

53.With respect to Mr So, I do not find any basis for this submission of his in the wording of the Ordinance itself or on a purposive interpretation of the Ordinance. As stated in the Explanatory Memorandum to the Legal Aid (Amendment) Bill 1984, the Bill amended the Ordinance to “introduce a new [Supplementary Scheme] and to effect a number of miscellaneous improvements” (emphasis added), one of which was clause 8 (what is now section 10(3)(c)), which “enables the Director to deny legal aid where the grant of legal aid would not serve a useful purpose”. 

54.It thus seems clear that the legislature did not intend section 10(3)(c) to operate differently under the Supplementary Scheme and the Ordinary Scheme.  I therefore do not find that the discretion under section 10(3)(c) should be exercised with more restraint for applicants under the Ordinary Scheme than for applicants under the Supplementary Scheme.  No such distinction could legitimately be drawn.

DISCUSSION

Costs of setting aside the Default Judgment

55.Mr So did not dispute that, in exercising his discretion under section 10(3)(c) of the Ordinance, the Deputy Registrar was entitled to take into consideration whether the Applicants would be granted costs in the setting aside of the Default Judgment.  This must be correct.  The costs order would directly affect the costs to the Legal Aid Department if the Applicants were granted legal aid to set aside the Default Judgment.  As set out in paragraph 51 above, costs to the Legal Aid Department was one factor to consider in determining whether the case was one in which it would be unreasonable to grant the Applicants legal aid.

56.Mr So however contended that the Deputy Registrar had erred in suggesting that the court would not be minded to grant costs to the Applicants even if they succeeded in setting aside the Default Judgment. 

57.In this regard, I accept Mr So’s submissions that:-

(1)  The usual costs order for the setting aside of an irregular default judgment is for the plaintiff to pay costs to the defendant: see Hughes v Justin [1894] 1 QB 667 at 669-670; Hong Kong Civil Procedure 2020 (“HKCP 2020”) at §13/9/11.

(2)  A costs order of “costs in the cause” in setting aside default judgment has been considered wrong as having in effect imposed a term on the defendant and qualified or subtracted from his absolute right to have the judgment set aside: White v Weston [1968] 2 QB 647 at 659; HKCP 2020 at §13/9/11.

58.I have not been directed to any authority that shows otherwise.  While I do not have to determine, for present purposes, the costs order that will be granted if the Default Judgment were set aside, by merely stating that the conduct of the Applicants meant that there was a high chance they would not be granted costs or that costs would be in the cause, the Deputy Registrar did not appear to derive support from any case authority.  Nor did he consider or acknowledge the usual practice that costs are awarded to defendants who succeed in setting aside a default judgment. 

59.The Deputy Registrar found that there was a high chance that the Applicants would succeed in setting aside the Default Judgment.  In that situation, it does seem to me that there is a real likelihood that the Applicants would be awarded costs.  This is a relevant matter that should have been taken into account when the Deputy Registrar considered the question of costs if legal aid were to be granted to the Applicants.  If the Deputy Registrar had in fact taken into account the usual costs order for setting aside of an irregular default judgment, he failed to give adequate reasons or, indeed, any indication that he had done so.

60.I am therefore of the view that the Deputy Registrar’s conclusion that there was a high chance the Applicants would not be granted costs for setting aside the Default Judgment involved a material error in his reasoning that rendered the LAA Decision Wednesbury unreasonable. For this reason alone, I shall allow the application for judicial review and quash the Deputy Registrar’s said LAA Decision.

61.For the sake of completeness, I shall proceed to consider other aspects of the LAA Decision which the Applicants took issue with below.

The Applicants’ ultimate chances of success

62.I turn to examine the Deputy Registrar’s reasoning that if Default Judgment were set aside, there was a possibility that: (i) the action in DCCJ 5444/2009 would continue, or (ii) a new action would be commenced by the SJ.  He held that, if these were possible (“如果係可以嘅話”), then the chances of the Applicants successfully defending the claim by the SJ was extremely low.  He concluded that if the Default Judgment were set aside, continuing on (“件案件如果作廢之後，延展落去”), there was a high chance the Applicants would ultimately fail.

63.My review for Wednesbury unreasonableness here is divided into two parts:-

(1)  Was the Deputy Registrar entitled to take into account the Applicants’ chances of success in DCCJ 5444/2009?  If so, was the Deputy Registrar’s finding that there was a high chance the Applicants would ultimately fail in the continued action Wednesbury unreasonable?

(2)  Was the Deputy Registrar entitled to take into account the Applicants’ chances of success in a future action commenced by the SJ against the Applicants for the same claim?  If so, was the Deputy Registrar’s finding that there was a high chance the Applicants would ultimately fail in the new action Wednesbury unreasonable?

(i)  Chances of the Applicants’ success in DCCJ 5444/2009

64.I accept Ms Fung’s submission that the Deputy Registrar, in exercising his discretion under section 10(3)(c) of the Ordinance, was entitled to take into consideration the chance that the Applicants will ultimately succeed in the action in DCCJ 5444/2009. 

65.As a matter of principle, whether there are reasonable grounds for pursuing or defending the action of which the proceedings in which legal aid is applied for form a part, and not merely the merits of those particular proceedings, can be considered in determining whether, in the particular circumstances of a case, it is unreasonable to grant legal aid. 

66.In R v Legal Aid Committee No. 1 (London) Legal Aid Area, Ex parte Rondel [1967] 2 All ER 419, the plaintiff was granted leave to appeal to the House of Lords the decision to strike out his statement of claim and dismiss his action for claiming damages for professional negligence against the defendant.  The plaintiff applied for legal aid to pursue the appeal, and his application was refused on the ground that it appeared “unreasonable that he should receive legal aid in the particular circumstances of the case”.  Under section 1(6) of the then Legal Aid and Advice Act 1949:-

“A person shall not be given legal aid in connection with any proceedings unless he shows that he has reasonable grounds for taking, defending or being a party thereto, and may also be refused legal aid if it appears unreasonable that he should receive it in the particular circumstances of the case.”

67.The plaintiff then applied for judicial review of the refusal of his legal aid application.  The question was whether the consideration of the plaintiff’s chances of success on the merits of his action in negligence was irrelevant to the grant of legal aid in the plaintiff’s appeal to the House of Lords in the interlocutory proceedings.

68.The Court held that such consideration was relevant.  Lord Parker CJ said at 422H-I:-

“It seems to me that it is for the committee to consider the whole of the circumstances, and, in considering whether to grant legal aid for any particular proceeding, to take into consideration the nature of the action as a whole, and whether or not there are reasonable grounds for pursuing that action. If one looks at it from the point of view of the use of public money or from the point of view of the unfortunate defendant who is at risk in relation to costs when proceeded against under legal aid, it would be quite wrong if the committee were not entitled to take into consideration what I may call the merits of the action itself.”

69.In the present case, the Deputy Registrar noted the possibility of the action DCCJ 5444/2009 being continued, and held that if this were so, the chances of the Applicants’ final success would be low. 

70.The continuation of DCCJ 5444/2009 would necessarily require the extension of the Writ under Order 6 rule 8 of the RDC, or Order 2 rule 1 and Order 3 rule 5 of the RDC, such that the SJ could properly serve the Writ on the Applicants. Insofar as is relevant, the law in this regard can be summarised as follows:- 

(1)  As Mr So pointed out, the SJ would first have to satisfy the court that there is a good reason to extend time for service of the Writ and give a satisfactory explanation for his failure to apply for renewal of the Writ before the validity of the Writ expired.  Carelessness or oversight is not good reason accepted by the court.  Only if the court is satisfied with the SJ’s explanation in the first stage will it move to the second stage to decide whether to exercise its discretion in favour of renewal of the Writ by considering all the circumstances of the case: Dixon v Grand Hyatt Hong Kong Co Ltd & Anor [1994] 2 HKC 489 at 495E-F; Wong Hon Pik v Tung Yiu Keung t/a Oi Kwun Fast Food Shop DCPI 782/2006 (unrep., 20 November 2007) at §§3-4.

(2)  Unless there are exceptional circumstances, the court will not extend the validity of a writ where the application for renewal is made after the validity of the writ has expired, if the renewal of the writ would deprive a defendant of the accrued benefit of a limitation period defence which he would have had supposing the extension were not granted and the plaintiff were compelled to serve a fresh writ: Heaven v Road and Rail Wagons Ltd [1965] 2 QB 355 at 361D-E; Krohn & Co Import/Export GmbH & Co KG v Oak Steamship Co Ltd [1982] HKC 353 at§64.

(3)  However, I also note that exceptional circumstances may exist where the delay in the application to extend the validity of the writ has been induced, or contributed to, by the words or conduct of the defendant, or, for other reasons without the plaintiff’s fault, the writ could not have been served earlier even if the application had been made and granted earlier: Heaven at 365F-G; Krohn at§69.

(4)  Mr So also relied on Leal v Dunlop Bio-Processes International Ltd [1984] 2 All ER 207 and submitted that Order 2 rule 1 or Order 3 rule 5 of the RDC would not assist the SJ.  At 215h-j, Slade LJ held that the plaintiff could not expect the court to exercise its discretion more favourably under Order 2 rule 1 than it would be prepared to exercise it on an application under Order 6 rule 8.  As his Lordship put it, if the plaintiff could not properly enter through the front door of Order 6 rule 8, he should not be allowed to enter through the back door of Order 2 rule 1.

(5)  In Bank of China (Hong Kong) Ltd v Chen Jianren [2009] 3 HKLRD 163, the plaintiff obtained default judgment against the defendant. The service was invalid only because, unbeknownst to the plaintiff, the defendant happened to be outside Hong Kong on the day of service. The plaintiff consented to having the default judgment set aside. The Master extended the writ for a period of 3 months from the date of his order, more than 4 years after the expiry of the writ.  DHCJ Carlson upheld the Master’s extension of the writ under Order 2 rule 1 and Order 3 rule 5 of the Rules of the High Court (Cap. 4A). He held that there were exceptional facts justifying the extension, namely, that the plaintiff had made perfectly good and reasonable efforts to serve the defendant and that no limitation defence was available to the defendant. 

71.I do not need to conclusively decide whether the Applicants will in fact succeed in resisting any application by the SJ to extend the Writ.  However, I do find that there is a chance that the Applicants will so succeed:-

(1)  Under Order 6 rule 8 of the RDC, the period for service of the Writ expired on 29 December 2010.  No application for extension of the Writ had been taken out by the time of the LAA Decision on 4 January 2019.

(2)  There is a factual dispute over whether the SJ had made good and reasonable efforts to serve the Applicants.  In this regard, I note that Mr So conceded in his skeleton submissions that the SJ could renew the Writ against the 2^nd Applicant under Order 2 rule 1, citing Chen Jianren, but on the present facts, I do not see this concession as necessarily following from that case.

(3)  The limitation period for claims on contract is 6 years from the accrual of the cause of action: section 4(1)(a) of the Limitation Ordinance (Cap. 347).  The 1^st Applicant ceased to be a student of the Centre in 2003.  I note that the clauses of the Undertaking provide for various potential repayment periods, but also that demands for the immediate payment of the outstanding Loan, interest and fees were sent to the Applicants on 26 June 2009.  In the circumstances, it is not immediately clear when the cause of action by the SJ against the Applicants had accrued.  This will depend on the construction of the Undertaking and the Indemnity: see Chitty on Contracts (33^rd Ed., 2018) at §28-035-§28-038. 

(4)  I also note the 2^nd Applicant’s written statement that he agreed to pay HK$46,000, but not interest and additional fees, on 27 July 2018.  This may engage the question of whether there was a written acknowledgement of liability under section 23(3) of the Limitation Ordinance, in relation to which Mr So had made oral submissions before the Deputy Registrar.

72.The Deputy Registrar did not refer to the above or any considerations as to the chance of the Applicants resisting any attempt by the SJ to continue the action in DCCJ 5444/2009.  The question I need to determine is whether, in these circumstances, the Deputy Registrar’s reasoning that if the case were to continue after the Default Judgment were set aside or if a new action were commenced, the Applicants would have a high chance of losing at final judgment, was Wednesbury unreasonable.

73.If the SJ is unable to extend the Writ, then the claim in DCCJ 5444/2009 would fail and the Applicants would succeed.  If the Deputy Registrar was to consider the Applicants’ chance of success in DCCJ 5444/2009 under section 10(3)(c) of the Ordinance, as I find he was entitled to, he must take into account the chance of the Applicants successfully resisting the extension of the Writ and thus of succeeding in the action DCCJ 5444/2009.

74.I therefore conclude that the Deputy Registrar failed to take into account the relevant matter of the Applicants’ chance of resisting any application by the SJ to extend the Writ.  If he had, he failed to indicate that he had done so and to give adequate reasons for his conclusion that there was nevertheless a high chance the Applicants would fail at final judgment. 

(ii)  Chances of the Applicants’ success in a new action

75.For the following reasons, I am not persuaded that consideration of the SJ’s chance of success in a new action against the Applicants is a relevant matter to be taken into account by the Deputy Registrar in exercising his discretion under section 10(3)(c) of the Ordinance.

76.First, section 10(3)(c) refers to unreasonableness in all the circumstances of the “case”.  On a plain reading of the word, “case” refers to the action in question.  It does not in my view encompass the circumstances of potential future actions on the same facts.

77.Second, as shown in Rondel, whilst the legal aid committee was entitled to consider whether the applicant might succeed in the action; that action was the action in which there were interlocutory proceedings in respect of which the applicant sought legal aid.  Lord Parker CJ explained at 422G-H that if the applicant’s chances of success in the action were irrelevant to the application for legal aid in the interlocutory proceeding:-

“a plaintiff may be refused legal aid because it is thought that he had no reasonable grounds for pursuing his claim, and yet the moment the defendant takes action either by way of applying to have the action dismissed as disclosing no cause of action, or maybe by applying for the determination of a preliminary point in lieu of demurrer, then immediately the merits in the action as a whole become quite irrelevant and the sole question is whether there is a reasonable ground for defending a claim in the interlocutory proceeding in question. For my part, I find that I am quite unable to accept that argument.”

78.Lord Parker CJ’s reasoning was that the nature of the action as a whole had to be considered when deciding whether to grant legal aid for a proceeding that formed part of that action.  If a plaintiff may be refused legal aid in his action in negligence based on its lack of merits, those merits must also be relevant to the grant of legal aid to the plaintiff in the interlocutory proceedings that would in effect conclude the action.

79.To put it another way, the benefit to the plaintiff in Rondel if he successfully appealed the decision to strike out his statement of claim and dismiss his action, was not limited solely to success in that proceeding.  The purpose of appealing that decision was to allow the plaintiff to continue pursuing his claim in negligence against the defendant, in the hope of ultimately succeeding in that claim against the latter. Success in his action in negligence being the benefit sought by the plaintiff in applying for legal aid in the interlocutory proceedings, the chance of his success in that action was therefore a relevant consideration in determining whether it was unreasonable to grant the legal aid application.

80.This reasoning however does not apply to new actions.  While the Applicants’ chance of success in DCCJ 5444/2009 is relevant to whether the Applicants would be able to obtain the benefit of setting aside the Default Judgment, what happens after the SJ is unable to extend the Writ in DCCJ 5444/2009 does not affect the Applicants in obtaining the final benefits from being granted legal aid to set aside the Default Judgment, namely, the benefits of succeeding in DCCJ 5444/2009.

81.The prospects of success of any future action taken by the SJ against the Applicants do not affect the benefits that the Applicants will receive in DCCJ 5444/2009.  It is clear that the reference to whether an applicant may obtain a benefit in a “practical sense” in Legal Aid in Hong Kong (2006) at 119-120 (quoted at paragraph 47 above) concerns whether the applicant will be able to enforce the judgment once obtained, and not what may happen to this benefit in the future after judgment is obtained and enforced.

82.Third, should the prospects of entirely new actions on the same underlying facts be deemed relevant as a matter of generality, the decision-maker in legal aid applications must or at least will often have to consider this possibility, no matter how speculative it is. This is a task the decision-maker is ill-equipped to handle and he would therefore also incur undue costs in doing so. Further, this may well lead to a floodgate of applications and/or appeals by claimant/plaintiff applicants on the basis that some defectively prosecuted actions should nonetheless be granted legal aid for the prospect of them ultimately succeeding in hypothetical actions commenced afresh. Indeed, quite apart from claimant/plaintiff legal-aid applicants contemplating future actions, a respondent/defendant is in no position to dictate or anticipate with any certainty the commencement of future proceedings. In these circumstances, it is even more inappropriate for the decision-maker to assume the mind of the third-party claimant/plaintiff at times for the benefit of the respondent/defendant. Ultimately, should future actions eventually arise, intending applicants can apply for legal aid then and their specific merits can then be weighed. It is premature, in deciding whether to grant legal aid under Action A1, to consider the strength of the parties’ cases in the hypothetical Action A2.

83.In the event I am wrong and the Deputy Registrar was entitled to take the chances of success in a future action by the SJ against the Applicants into consideration in exercising his discretion under section 10(3)(c) of the Ordinance, I find that the Deputy Registrar failed to take into account the chances of success of the Applicants’ limitation defences.  This would clearly be relevant to the chances of success of any future claim by the SJ against the Applicants.

84.I need not finally determine whether the Applicants’ limitation defences would succeed.  As set out in paragraph 71(3) above, this would depend on when the SJ’s causes of action on the Undertaking and the Indemnity accrued, which would in turn depend on the construction of the Undertaking and the Indemnity.

85.In his oral submissions before the Deputy Registrar, Mr So did address the Deputy Registrar on the limitation defence. In the LAA Decision, the Deputy Registrar reasoned that if the case were to continue or a new action were commenced, there is a high chance the Applicants would not succeed at final judgment.  The Deputy Registrar did not consider whether there was a chance of success for the limitation defences.  This was a relevant consideration going to whether or not the Applicants would likely succeed at final judgment in a new action commenced by the SJ.  If the Deputy Registrar had considered this factor, there was no adequate reasoning to this effect.

86.I therefore find that the Deputy Registrar did err in coming to the view that there was a high chance the Applicants would fail at final judgment.

The 2^nd Applicant’s undue influence defence

87.The Deputy Registrar did in fact consider the merits of a defence put forward by the 2^nd Applicant to the SJ’s claim, namely the defence of undue influence in entering into the Indemnity.  He considered the chances of success of such a defence to be low.  This consideration goes towards the merits of the continued DCCJ 5444/2009 action as well as the merits of any new action commenced by the SJ against the Applicants.  This was a relevant matter that the Deputy Registrar took into account.  I find that the Deputy Registrar did not act unreasonably in finding that the undue influence defence of the 2^nd Applicant on the present facts would not have had a reasonable chance of success in DCCJ 5444/2009 or in a new action (if, contrary to my views above, the Deputy Registrar was indeed entitled to take into account the latter).

Waste of public funds

88.Mr So submitted that the Deputy Registrar’s reason that public funds would be wasted was an arbitrary one.  As set out in paragraph 25 above, he argued that the Deputy Registrar had decided the LAA Decision on the sole basis of costs, or being the same reason, that public funds would be wasted.  In that regard, he read the Deputy Registrar’s reasoning on the Applicants’ chances of success at final judgment as going to whether or not the Applicants would be granted costs at final judgment if the court, in setting aside the Default Judgment, ordered costs be in the cause.

89.I accept that if the costs of the granting of the legal aid applications, or the chance of a waste of public funds, were the only reason for the Deputy Registrar’s decision, that would render the decision Wednesbury unreasonable: see McTear at 118E-F (per Lord Kirkwood); Bayley v Nixon (independent reviewer of legal aid) & Victoria Legal Aid [2015] VSC 744 at §§55-56 (per Bell J).

90.In Bayley, the court held that the desirability of ensuring public confidence in Victoria Legal Aid’s stewardship of limited public funds was a relevant consideration in determining whether, under section 24(1)(b) of the Legal Aid Act, it is “reasonable having regard to all relevant matters to provide the legal assistance”.  However, this consideration applied equally to every application for legal assistance, and if there was nothing in the reasons or the objective factual circumstances to show how it applied in the particular application to result in it being rejected, it would be legally unreasonable: Bayley at §§55-56.

91.However, I do not consider costs, or the chance of a waste of public funds, to be the sole reason for the Deputy Registrar’s decision to dismiss the Applicants’ Appeals.  I reject Mr So’s submission that the present case is on all fours with Bayley.  In that case, the independent reviewer confirmed the decisions to refuse legal assistance to the applicant, referring to the observations by an independent reviewer in another case that “there is an important public interest in ensuring public confidence in VLA’s stewardship of the funds which are limited”, without expanding on his reference to this observation or explaining its relevance to the applicant: Bayley at §4.

92.It is clear from the LAA Decision (at Transcript 4H-J) that the Deputy Registrar considered the costs of setting aside the Default Judgment and the Applicants’ chances of success at final judgment as two separate considerations.  The Deputy Registrar then reached his conclusion on the chance of a waste of public funds pursuant to those two prior considerations. I therefore do not find the Deputy Registrar’s conclusion challengeable on the ground that he had only considered the issue of costs or the waste of public funds.

93.However, given my conclusions on the Deputy Registrar’s consideration of the costs of setting aside the Default Judgment and the Applicants’ chances of success in the continued or new action, I find that it was likewise erroneous for the Deputy Registrar to conclude that there was a chance public funds would be wasted.

DISPOSITION

94.In the circumstances, I find the LAA Decision to be Wednesbury unreasonable. I grant the Applicants’ application for leave to apply for judicial review, and the application for judicial review is allowed.

95.An order of certiorari is granted to bring up and quash the LAA Decision.  The Applicants’ Appeals are remitted to a different Master for fresh determination in accordance with this judgment.[4]

96.The Director shall pay the Applicants’ costs of these proceedings, to be taxed if not agreed.  There shall be no order as to costs as between the Applicants and the Deputy Registrar.

Mr Simon SO, instructed by Messrs Chan & Associates, for the Applicants

The Putative Respondent was absent

Ms Fanny FUNG, Government Counsel, instructed by Department of Justice, for the Putative Interested Party