China Citic Bank International Ltd Formerly Known As Citic Bank International Formerly Known As Citic Ka Wah Bank Ltd v. Li Yan Hung and Others

HCMP 2208/2019

[2022] HKCFI 354

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 2208 OF 2019

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J U D G M E N T

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A. INTRODUCTION

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

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

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

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

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

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

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

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

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

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

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

B.  BACKGROUND

B1.  The Main Action

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

B2.  The Third Party Action

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

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

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

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

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

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

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

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

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

C.  APPLICABLE LEGAL PRINCIPLES ON STRIKING OUT

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

D.  THE TP CLAIMS ARE CLEARLY TIME-BARRED

D1.  Limitation periods applicable to the TP Claims

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

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

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

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

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

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

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

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

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

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

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

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

D2.  The TP Claims are time-barred

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

D4.1  Purported reliance on Section 26 LO

49.Section 26(1) LO provides that:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(collectively, the “Alleged Concealed Documents”)

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

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

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

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

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

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

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

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

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

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

D4.2  Purported reliance on Section 31 LO

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

F.  D1’s AMENDMENT SUMMONS SHOULD BE DISMISSED

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

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

G.  CONCLUSION

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

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

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

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

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

Mr Adrian Wong, instructed by Messrs Tse Yuen Ting Wong, for the 1^st defendant

Ms Sara Tong, instructed by Messrs P C Woo & Co, for the 1^st Third Party