WADDINGTON LTD v. CHAN CHUN HOO THOMAS AND OTHERS

HCA 3291/2003

[2018] HKCFI 1113

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 3291 OF 2003

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DECISION

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1.  This is the Plaintiff’s application for an extension of time to commence proceedings for the taxation or assessment of certain costs under paragraph 2 of this court’s earlier order dated 21 March 2018.

2.  The present action is a multiple derivative action brought by Waddington Limited (the Plaintiff), a minority shareholder of Playmates Holdings Limited formerly known as Playmates Interactive Entertainment Limited (the 3^rd Defendant), for wrongs allegedly done to and damage suffered by Profit Point Limited (the 5^th Defendant).

3.  After a contested trial, Mr Recorder P Fung, SC handed down a judgment on 18 December 2013 (“the Judgment”) in favour of the 5^th Defendant against the 1^st Defendant in the sum of HK$33,511,220.32.

4.  On 10 March 2014, Mr Recorder P Fung, SC ordered (“the March 2014 Order”), inter alia, (i) the 1^st Defendant to pay the Plaintiff the costs of this action to be taxed on the common fund basis, if not agreed, and (ii) the 5^th Defendant to indemnify the Plaintiff in respect of any costs incurred by the Plaintiff which it will not have been able to recover from the 1^st Defendant (“the First Instance Indemnity”).

5.  On 15 January 2014, the 1^st Defendant filed a Notice of Appeal in CACV 10/2014 (“the Main Appeal”) against the Judgment.

6.  On 26 November 2014, the learned Recorder ordered (“the November 2014 Order”) the 5^th Defendant to indemnify the Plaintiff in relation to the costs of the Main Appeal (“the CA Indemnity”).

7.  On 20 May 2016, the Court of Appeal handed down its judgment in CACV 10/2014 dismissing the Main Appeal with costs to the Plaintiff (limited to 75% of its costs).

8.  In relation to the costs of the derivative action, the Plaintiff’s costs against the 1^st Defendant have been taxed and settled, save in respect of the costs under an order made by Master Lai dated 1 March 2016 which, I was told at the previous hearing on 16 January 2018, have not yet been taxed.

9.  In relation to the costs of the Main Appeal, the Plaintiff claimed costs of HK$3,418,403.82 against the 1^st Defendant.  The Allocatur was issued on 30 November 2017 allowing HK$2,366,809.07 as taxed costs (exclusive of interest).  These costs have also been settled by the 1^st Defendant.

10.  The Plaintiff did not, however, proceed to enforce the First Instance Indemnity and the CA Indemnity against the 5^th Defendant in respect of the costs incurred by it in the action and the Main Appeal which it was unable to recover from the 1^st Defendant.

11.  On 3 August 2017, the 5^th Defendant issued a summons seeking (inter alia) an order that the Plaintiff do commence taxation proceedings and proceed with the taxation against the 5^th Defendant pursuant to, inter alia:-

(1)  paragraph 5 of the March 2014 Order (relating to the First Instance Indemnity); and

(2)  paragraph 2 of the November 2014 Order (relating to the CA Indemnity).

12.  On 9 January 2018, the 5^th Defendant issued a further summons to amend the earlier summons of 3 August 2017 seeking, effectively, an order that the costs of the Plaintiff to be indemnified by the 5^th Defendant pursuant to the First Instance Indemnity and CA Indemnity be taxed on the “party and party”, alternatively “common fund”, basis.

13.  On 21 March 2018, this court handed down its decision on the 5^th Defendant’s said summonses and ordered (“the March 2018 Order”), inter alia, that:

(1)  the Plaintiff’s respective costs in respect of the First Instance Indemnity and CA Indemnity shall be taxed or assessed by a Master on the common fund basis; and

(2)  unless the Plaintiff shall commence proceedings for the taxation or assessment of the aforesaid costs within 14 days from the date of the order therein, the Plaintiff shall be debarred from enforcing the First Instance Indemnity and CA Indemnity against the 5^th Defendant (“paragraph 2 of the March 2018 Order”).

14.  The time for the commencement of proceedings for the taxation or assessment of the costs in respect of the First Instance Indemnity and CA Indemnity under paragraph 2 of the March 2018 Order expired on 4 April 2018.  The Plaintiff did not commence proceedings for the taxation or assessment of the relevant costs, but took out a summons on 29 March 2018 (“the Summons”) seeking:-

(1)  a stay of paragraph 2 of the March 2018 Order pending the outcome of its application for leave to appeal against that order or the outcome of the appeal (if leave to appeal is granted) or;

(2)  alternatively, an order that the time for the Plaintiff to commence the proceedings for the taxation or assessment of the relevant costs be extended for 90 days from the date of the order to be made thereunder (paragraph 4 of the Summons).

15.  The Summons came before Madam Justice M Chan on 4 April 2018.  At that call-over hearing, the Plaintiff informed the judge that the Plaintiff would not pursue the stay application, but would apply for an extension of time to commence the proceedings for the taxation or assessment of the relevant costs under paragraph 4 of the Summons.

16.  The substantive hearing of the Summons came before this court on 14 May 2018.  In his Skeleton Argument, Mr Lam confirmed that the Plaintiff would not pursue the stay application, but would confine its application to the extension of time sought under paragraph 4 of the Summons.

17.  On behalf of the 5^th Defendant, Mr Law submits that the present application is misconceived, because the sanction imposed by paragraph 2 of the March 2018, which is in the nature of an “unless order”, has already taken effect under Order 2, rule 4 of the Rules of the High Court, Cap 4A.  Accordingly, unless relief from sanction is sought and granted by the court, the application for an extension of time to comply with paragraph 2 of the March 2018 is doomed to failure.  References hereinafter to orders and rules shall, unless otherwise expressly indicated, be to the Rules of the High Court.

18.  Order 2, rule 4 states as follows –

“Where a party has failed to comply with a rule or court order, any sanction for failure to comply imposed by the rule or court order has effect unless the party in default applies to the Court for and obtains relief from the sanction within 14 days of the failure.”

19.  The meaning and effect of this rule was explained by Fok JA (as he then was), giving the judgment of the Court of Appeal, in Daimler AG v Leiduck [2012] 3 HKLRD 119:

[47]  Mr Wong submitted, in reliance on Marcan Shipping (London) Limited v Kefalas & Anor [2007] EWCA Civ 463, unrep., 17.5.07 at §§28 to 36, that, under the new procedural regime, it is not for the party seeking to take advantage of a default to apply to the court in order to render a sanction for that default effective.  Instead, the sanction takes effect immediately and it is for the party in default to apply for relief from the sanction.  Only if there is an application for relief from the sanction is the court required to consider whether, in all the circumstances, it is just to make an order granting relief from the consequences that would otherwise follow.

[48]   We would accept those submissions as an accurate summary of the effect of O.2 r.4 and O.2 r.5.

20.  In Lee Sai Nam v Li Shu Chung, HCA 1711/2009, 21 May 2013, Deputy High Court Judge Marlene Ng further explained the position as follows:-

[68] … An unless order is peremptory in nature, ie it directs a party or parties to perform some requirement by a certain date and specifies the consequences of default. The consequences may differ according to the circumstances. Auld LJ in Hytec Information Systems Ltd v Coventry City Council, stated that such an order “is, by its nature, intended to mark the end of the line for a party who has failed to comply with it and any previous orders of the court”.

[69] … the sanction imposed in any unless order takes effect automatically unless relief from sanction is obtained, and the non-defaulting party does not have to make any application in order to enforce the sanction.

[71] It is therefore important to keep in mind the distinction between the operation of the sanction which is automatic and the exercise of the court’s discretion to grant relief. In considering whether the sanction has become operative, the court must confine itself to deciding whether there has been any breach of the unless order, and must not embark on the exercise of examining whether there is any plausible explanation or justification for the default… Further, since the sanction in any unless order becomes operative automatically upon breach, it is not for the court in deciding whether or not there has been such breach to question the suitability of the sanction vis-à-vis the default or to re-write the sanction imposed under such order.

[72] This can be procedural tripwire for the unwary. Once a breach of the unless order occurs, the defaulting party cannot escape the guillotine effect of the sanction by seeking extension of time and/or by putting forward mitigating factors to explain the default. His only recourse is to apply for relief from sanction.

21.  It is thus clear that the Plaintiff cannot avoid the automatic consequence of default provided for in paragraph 2 of the March 2018 simply by seeking an extension of time for compliance.  The fact that the Plaintiff made the application for an extension of time prior to the expiry of the deadline for compliance, a matter repeatedly emphasised by Mr Lam, is neither here nor there, for Order 2, rule 4 makes it clear that the sanction for failure to comply with the order has effect unless the party in default applies to the court for and “obtains relief” from the sanction within 14 days of the failure.

22.  On behalf of the Plaintiff, Mr Lam applied, belatedly at the hearing on 14 May 2018, for relief from sanction under Order 2, rule 5.  That rule provides as follows:-

“(1) On an application for relief from any sanction imposed for a failure to comply with any rule or court order, the Court shall consider all the circumstances including –

(a) the interests of the administration of justice;

(b) whether the application for relief has been made promptly;

(c) whether the failure to comply was intentional;

(d) whether there is a good explanation for the failure to comply;

(e) the extent to which the party in default has complied with other rules and court orders;

(f) whether the failure to comply was caused by the party in default or his legal representative;

(g) in the case where the party in default is not legally represented, whether he was unaware of the rule or court order, or if he was aware of it, whether he was able to comply with it without legal assistance;

(h) whether the trial date or the likely trial date can still be met if relief is granted;

(i) the effect which the failure to comply had on each party; and

(j) the effect which the granting of relief would have on each party.

(2)   An application for relief must be supported by evidence.”

23.  No prior notice of intention to apply for relief from sanction was given by Plaintiff, notwithstanding the fact that it was plainly aware, from Mr Law’s Skeleton Argument dated 10 May 2018, that the 5^th Defendant would rely on Order 2, rule 4 to resist the Summons.  Further, it is clear from Order 2, rule 5 that a range of matters mentioned in sub-paragraphs (a) to (j) thereof have to be considered before the court may grant relief from sanction under that rule.  Quite apart from the requirement in rule 5(2) that the application must be supported by evidence, it seems to me to be clear, as a matter of procedural fairness, that a party intending to apply for relief from sanction must give proper notice of the application to the other side so that it will have an opportunity, if so advised, to file evidence which may be relevant to the matters mentioned in sub-paragraphs (a) to (j) to resist the application.  This was not done.  I am therefore not prepared to entertain the Plaintiff’s oral application made at the hearing for relief from sanction under Order 2, rule 5.

24.  There is, I consider, no answer to Mr Law’s submission that the Plaintiff’s application for an extension of time to comply with paragraph 2 of the March 2018 Order is misconceived.  Accordingly, the Summons is dismissed with costs to the 5^th Defendant, to be taxed if not agreed.