Wong Kam Wing v. Cheng Pui Lun and Another

DCCJ003878/2002

DCCJ3878/2002

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 3878 OF 2002

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Coram: His Honour Judge Muttrie in Chambers

Date of Hearing: 31 May 2004

Date of Ruling: 9 June 2004

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RULING

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1.There are before me two summonses, one by the defendants, taken out on 25 February 2004 for directions for the taking of an account under Order 43 Rule 3, and the other by the plaintiff, taken out on 24 May 2004 to strike out the defendant's amended Defence and Counterclaim on the ground of the defendants' non-compliance with Order 34 Rule 5 of the Rules of the District Court.

2.The case arises out of a joint venture by the parties to buy properties and share equally the profits or losses resulting from the resale thereof, between 1992 and 1998. There was a division of the proceeds in 1998. Now the plaintiff claims that the defendants owe him money. His case is based on a claim for indemnity for a payment of $200,000.00 which he made under his guarantee of the defendant's obligations under a mortgage of one particular property; $3,157.51 for a part payment made by him under the guarantee; and $214,688.75 which he says is due to him under the joint venture.

3.The case has a curious procedural history. The plaintiff issued his Writ on 24 June 2003 and on 5 August 2002 he obtained judgment in default of defence. The defendants applied to set aside the default judgment and on 16 December 2002 H. H. Judge H. C. Wong ordered that the judgment for $203,157.51 not be disturbed but that the judgment for $214,688.75 be set aside on condition of the defendants' paying that sum into court.

4.The defendants appealed, and on 11 July 2003 the Court of Appeal set aside the judgment in its entirety and ordered that an account be taken between the parties. No directions were given as to the taking of the account. The parties however disregarded the order for an account and prepared for trial in the usual way. On 18 July 2003 the plaintiff's solicitors indicated that they would amend the Statement of Claim and offered to extend the time for filing the Defence and Counterclaim until after the amended Statement of Claim had been filed. The defendants' solicitors agreed, but filed their Defence and Counterclaim on 21 July. A Reply and Defence to Counterclaim was filed on 4 August and then the parties agreed directions on 25 August 2003. In September the parties proceeded with discovery. There was some difficulty with the exchange of witness statements and orders were made in December but in any event the statements were filed and served in January 2004. Later that month, the parties agreed that the defendants should have leave to amend; the Amended Defence and Counterclaim was filed on 31 January and the Amended Reply and Defence to Counterclaim was filed on 18 February 2004. Meanwhile, the plaintiff had in November filed the Notice of Application for a Pre-Trial Review.

5.It is against this background that the defendants applied for directions as to the manner of taking the account. The application is supported by the 3rd affirmation of the 1st defendant. He says that he has been advised by counsel and believes that the Court of Appeal has already ordered an account; it is improper for the parties to bring the action to trial an account should be taken instead.

6.The plaintiff replies in his 2nd affirmation that he agrees that the Court of Appeal ordered an account, but says that it did not specify the manner in which the account was to be taken. The plaintiff never demanded the taking of an account; and its demand for that now is a delaying tactic. The plaintiff further says that he has disclosed all his documents and has no others. The issues are clearly defined in the pleadings; they relate mainly to two properties in Goodrich Gardens. The crux of the dispute concerns a Memorandum dated 11 March 1998 and signed by the 1st defendant, agreeing that an account had been taken in respect of the investment and acknowledging that was owed to the plaintiff. The 1st defendant seeks to challenge the contents of the joint accounts which he has signed and such argument is likely to be subject matter of cross-examination at trial. Since all the documents have been disclosed, the order of the Court of Appeal for an account has been complied with.

7.This is answered by the 1st defendant's 4th affirmation in which he states that the defendants had misunderstood the proceedings. They mistakenly believed that they had to proceed to trial and that at the trial the court would take the account on its own initiative. Only when counsel's advice was sought in February 2004, after the application for the Pre-Trial Review was it realised that the defendants were on the wrong track.

8.There is no doubt that the Court of Appeal ordered that an account be taken. The words of the Order are perfectly clear. The reasons for it are clearly set out in the judgment of Rogers, V-P at Paragraph 8:

"8.

It seems to me quite clear in this case that what is in dispute in these proceedings is the amounts involved and this is a clear case where an account needs to be taken. The defendants have conceded that some money was owing to the plaintiff and, indeed, the sum of $99,808.76, plus an amount of $3,539.14 relating to the interest thereon was, in fact, paid to the plaintiff. In my view, the proper order which should have been made on the application was that the judgment should have been set aside and the court should have ordered an account to be taken between the parties."

9.Quite how the solicitors on both sides managed to disregard the order of the Court of Appeal is not clear. Perhaps it is a novel point. The Court of Appeal in effect said that the judge below should have taken the initiative, on the papers before her when the application was made to set aside the default judgment, to order an account even though neither party had applied for it, or even thought of it. The First Cumulative Supplement to the Hong Kong Civil Procedure 2004 provides for an amendment to the commentary on Order 13 at Paragraph 13/9/15 to add to the other powers of the court, in setting aside a regular judgment on terms, the power to order an account where what is in dispute is the amounts involved. The Court of Appeal judgment is cited. So it may be said that the Court of Appeal has made new law. But it does not matter. The Court of Appeal made an order, and any court's order must be obeyed, whether or not it is outside the experience of the solicitors involved.

10.The plaintiff now opposes the application for directions on the grounds that

1. The plaintiff has disclosed all relevant documents;

2. The order of the Court of Appeal has been complied with;

3. No order for taking of accounts had been made pursuant to Order 43 Rule 1; hence Order 43 has no application to the order of the Court of Appeal;

4. There is a preliminary question to be tried, hence no order for an account could properly be made under Order 43 Rule 1;

5. The taking of an account will not end the dispute between the parties;

6. The present application is not necessary and is misconceived.

11.So far as disclosure and compliance is concerned it seems to be suggested that the Court of Appeal was simply indicating that the parties should provide the necessary accounts documents to the court for determination of the issues. In other words, it was an order for discovery. I cannot accept this. The terms of the order are clear. An account is to be taken. As may be seen from the commentary at Paragraph 43/3/1 of the Hong Kong Civil Procedure 2004, this involves the production of an account by the accounting party, verified by affidavit; a notice of objection by the opposing party; and an inquiry at which evidence is generally given by affidavit with cross-examination if necessary though pleadings may be ordered in complicated cases. That has not been done. I do not see that the plaintiff's production of the home-made accounts appended as P1 to P11 of his witness statement can be regarded as complying with the order. So it cannot be said that the order of the Court of Appeal has been complied with.

12.Order 43 Rule 1 provides for application by a plaintiff for a summary order for an account where the writ is indorsed with a claim for an account or a claim which "necessarily involves taking an account". The court may, unless it is satisfied that there is a preliminary issue to be tried, order than an account be taken. It is true that that is not the situation here. Nor is it that envisaged by Rule 2 which gives the court the power to direct an account at any stage, on application by summons. But I do not see that these are the only ways in which the court can order an account. Section 48 of the District Court Ordinance gives the court a general ancillary jurisdiction. Section 64(1) gives the Court of Appeal power on appeal to make a final or other order on such terms as it thinks proper to ensure the determination on the merits of the real question in controversy between the parties and I presume that was the power exercised by the Court of Appeal in this case. Order 43 Rule 3 is obviously of general application, to provide for the procedure by which any order for an account is to be complied with.

13.The plaintiff further argues that there is a preliminary question to be tried, so no order for an account could properly be made under Rule 1. While Rule 1 does not apply here I take the point that an account would not be ordered where there is a preliminary issue to be tried. Here the issue to which the plaintiff seems to be an assertion made by the 1st defendant in his 2nd affirmation that he had signed one document in blank and that the plaintiff had subsequently inserted the content. This also seems to be relied on in support of the contention that the taking of an account will not end the dispute between the parties. But the Court of Appeal knew about this. It is referred to in Paragraph 4 of the judgment of Rogers VP. Clearly the Court did not consider this matter to be something which needed to be dealt with outside the taking of the account.

14.In any event it is not clear now that this contention is to be pursued. So far as I can see it does not appear in the pleadings, nor in the witness statement of the 1st defendant. There are only averments that the 1st defendant did not check the contents of the documents, and signed them without reading them.

15.I do not see that there is anything in the grounds which the plaintiff has advanced for his opposition to the defendant's application. But in any event, the position seems to me ultimately to be this. The Court of Appeal has ordered that an account be taken. That order was not appealed further, and it stands. An account has not been taken. It is not for this court to say that the order should be disregarded, or that it does not mean what it clearly says. So directions need to be given to allow an account to be taken.

16.The procedure set out above, and in more detail in those sections of Atkins Court Forms and Chitty & Jacob's Queens Bench Forms referred to by counsel in argument should have been followed; it was not. I questioned whether there might be any kind of short cut which would allow the existing pleadings and affidavits to be used, so as to avoid further costs. Counsel for the defendant argues that we must go back to the beginning; the plaintiff should lodge his account, verified by affidavit, if only by "cutting and pasting" from existing documents and the defendants will then lodge their notice of objections. Counsel for the plaintiff argues that the matter should simply go to trial but that I cannot accept.

17.I do not see any other way out but that an order be made for directions, and that the parties simply forget about the steps taken since the appeal, and start again.

18.Delay should be avoided and, given that discovery is now complete and there are in existence a set of pleadings and various affirmations, it should not take the plaintiff long to lodge an account duly verified. Nor should it take the defendants long to file a notice of objections. Counsel for the plaintiff was much concerned that, since there is a question about the authenticity of some of the documents, the account should be taken before a judge. Counsel for the defendant was prepared to accept that. It may well be necessary for parties to be cross-examined on their affidavits and to that extent the taking of the account will have some of the characteristics of a trial. As I have indicated, the question of the authenticity of any of the documents may not ultimately be an issue but if it is, I do not see why the Master should not be able to deal with it. I will leave the matter on the basis that the account is to be taken before a Master in Chambers; but the parties will have liberty to apply and if there is any need, once the matter has crystallised further, to have the account taken before a judge in open court then whoever wants that may be heard on it.

19.I will accordingly make an order in terms of paragraphs 1 and 2 of the defendants' summons save that the period given in paragraph 1(a) and (b) will be 21 days in each case. So far as the (adjourned) Pre-Trial Review is concerned, I have already ordered that that be vacated.

20.There are no good grounds to strike out the amended Defence and Counterclaim on the ground of the defendants' non-compliance with Order 34 Rule 5 plaintiff's summons. The plaintiff has known throughout what the defendants' position was.

21.I have already heard argument on costs so I can make a final order now. The costs of the Order 43 summons, and the affidavit in support of it, will be costs in the cause, because it is necessary for the further conduct of the proceedings. The plaintiff should not have opposed the application for directions. He did so, but failed. So the defendants must have the costs of dealing with the plaintiff's affidavit evidence in opposition and of their own affidavit in reply plus the costs of the hearing today, in any event.

22.The defendants must also have the costs of the Order 34 summons in any event.

23.So far as the costs thrown away are concerned, i.e. the costs of all the other steps taken since the date of the order of the Court of Appeal, it was contended for the plaintiff in counsel's skeleton argument that even if the defendants succeeded on their summons, the various steps taken by the parties were rendered futile because of the misunderstanding of the defendants that they needed to proceed with a trial, and therefore the defendants should be liable for all costs thrown away.

24.I have noted that after the Court of Appeal made its order, the next thing that happened was the plaintiff's solicitors' indication on 18 July 2003 that they would amend the Statement of Claim with their offer to extend the time for filing the Defence and Counterclaim until after the amended Statement of Claim had been filed. It seems pretty clear from this that if the defendants and their solicitors misunderstood the position, so did the plaintiff and his solicitors. I think that, whoever wins, it will be then be necessary to decide what steps, if any, taken by the parties were necessary or proper for the attainment of justice or for enforcing or defending the rights of the party whose costs are being taxed. This could be decided at taxation or by the Master (or judge) who takes the account. But I do not think it is necessary for me to make an order in respect of those costs at this stage.

Representation:

Mr. P.W. Wong instructed by Messrs. K.Y. Lo & Co. for Plaintiff.

Mr. B. Man instructed by Messrs. Benny Kong & Peter Tang for Defendant.