SNE ENGINEERING CO LTD v. CHIM KEE MACHINERY CO LTD

HCA 1313/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1313 OF 2012

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D E C I S I O N

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INTRODUCTION

1. This is the plaintiff’s application for leave to appeal to the court of appeal.  The subject-matter of the intended appeal was the costs order I made on 23 August 2012 (“the said costs order”).  By the said costs order, costs of the ex parte injunction order and the inter partes injunction order were awarded against the plaintiff.

BACKGROUND

2. The background leading to this action has been briefly stated in the decision on costs handed down on 23 August 2012 (“the 23 August decision”).  The background leading to this application is briefly stated below.

3. This action arose from a sub-contract concerning a construction site the owner of which was the MTR Corporation Ltd (“MTR”) and the main contractor of which was Hsin Chong Construction Co Ltd (“Hsin Chong”) (“the said site”).  The plaintiff was one of Hsin Chong’s sub-contractors whereas the defendant was one of the plaintiff’s sub-contractors.  The defendant was to supply certain machinery to the plaintiff for use at the said site (“the said machinery”).

4. This action was commenced in July 2012.  Shortly before the issuance of the writ herein, the plaintiff sought, and was granted, an ex parte injunction order in short enjoining the defendant to immediately remove the said machinery from the said site.

5. By 30 July 2012 (the hearing of the defendant’s application to discharge the ex parte order), however, Hsin Chong has earlier (on 25 July (according to the plaintiff) or 26 July (according to the defendant)) taken back a major part of the said site from the plaintiff. Further, Hsin Chong has engaged the defendant to supply the said machinery to itself (on 27 July).  The ex parte order has to be, and was, varied on 30 July as a result.

6. Further, by the time of the hearing leading to the said costs order (10 August 2012), the ex parte order and the inter partes injunction order no longer served any useful purpose.  They were discharged by the parties’ consent.

7. Finally, by the time of hearing of this application, there was the unusual situation that it was the defendant (and not the plaintiff) who remained at the said site.

THE SAID COSTS ORDER

8. In gist, the said costs order was premised on:

(a)   the plaintiff’s failure to make full and frank disclosure (para 6 to 20, the 23 August decision);

(b)   a lack of sufficient urgency to justify an ex parte application (para 21 to 26, the 23 August decision).

As will be made apparent below, the above two aspects were related.

THIS APPLICATION

(a)  Full and frank disclosure

9. The plaintiff’s first main complaint is that full and frank disclosure has been made in its supporting affirmation used at the ex parte application.  This, so it is argued, shows that the part of the 23 August decision summarized in para 8(a) is wrong.

10. The fact referred to in the above complaint has not been overlooked in the 23 August decision; in fact, it was expressly dealt with there (para 6 to 9, 11 and 16 thereof).  The criticism in the 23 August decision was in essence directed at the 4-page ex parte skeleton argument not having fairly put forth the rather complicated factual background which preceded the ex parte application.  The summary given therein at para 7 to 8 (concerning the said skeleton argument) and that given at para 9 and 11 (concerning the supporting affirmation and some of its exhibits) shows the main differences between them.

11. The plaintiff has obtained, and relies heavily on, the transcript of the ex parte hearing at this application (it was not available at the earlier hearing before me, though the 23 August decision already noted that the ex parte hearing lasted for about 8 minutes only (para 12 thereof)).  The transcript confirms the length of the ex parte hearing.

12. Before discussing this complaint further, it should be mentioned that two things are shown by the transcript:

(1)   the hearing lasted from 5:04pm to 5:12pm;

(2)   about half of the hearing time was spent on parts of the contents of the draft ex parte order.

13. The plaintiff emphasized the part of the transcript (at the beginning of the ex parte hearing) where the court indicated it has read “the papers” (referring to the court documents placed before the court (which would include the skeleton argument, the supporting affirmation and the exhibits)).

14. It is true the court made that indication. However, there were two remarks made by the court almost immediately afterwards which should reasonably have alerted the plaintiff to its duty of full and frank disclosure.

15. First, the court then said:

“The simple basis is you say the defendant terminated the contact 7 July. It’s his [sic] machinery; he [sic] should have taken it away if he’s [sic] terminated”.

Thus, it must be obvious to the plaintiff the court thought it to be a simple case of trespass.

16. As has been observed in the 23 August decision, the case was more complicated than that:

(a)   the plaintiff already suspected there was a secret agreement between Hsin Chong (the plaintiff’s main contractor) and the defendant conferring a right for the defendant to remain at the said site (para 9(10), 10 and 16(c) thereof);

(b)   the quantity, size and weight of the said machinery was such that its removal would require detailed planning and supervision (not only by Hsin Chong (the main contractor) but also the MTR (the employer) (para 16(a) and (b) and 20, the 23 August decision)).

17. Para 16(a) above can affect the ex parte court’s assessment of the plaintiff’s case in trespass.  Para 16(b) above is relevant to the grant of relief (for example, whether the removal of the said machinery should be immediate and/or whether such removal should be subject to the consent and/or direction of Hsin Chong and/or the MTR, and so on); this may also be relevant to the suitability of an ex parte application (see para 34 to 35 and 36(4) below).

18. If it is said that the court’s remark quoted at para 15 above was not sufficiently obvious to the plaintiff, the second remark ought to be.  The court also said at the ex parte hearing:

“Is [Hsin Chong] giving the notice tomorrow, or has it already given the notice?”

The query was very probably about Hsin Chong’s notice to terminate the plaintiff’s sub-contract (judging from the plaintiff’s reply at the ex parte hearing, it was probably also how the plaintiff understood the query).

19. The plaintiff’s justification for making the application on an ex parte basis was built wholly on Hsin Chong’s imminent termination of its sub-contract.  This is made apparent by the plaintiff’s ex parte skeleton argument (para 3 to 6 thereof (under the heading “Ex Parte application for Mandatory injunction”) and para 14 and 16 (“Background”)).

20. As has been noted in the 23 August decision, the said skeleton argument was a short 4-page document (para 6 thereof).  The skeleton argument says this about the risk of sub-contract termination:

“… there is a real risk … [Hsin Chong] will terminate its Sub-contract with P, on Wednesday 25 July 2012” (para 3 thereof);

“On 18 July … Hsin Chong threatened to determine the Sub-Contract by giving P 7 days notice of its intention to do so. This notice will expire on Wednesday 25 July 2012” (para 14 thereof);

“As Hsin Chong has now given P 7 days notice of its intention to determine the Sub-Contract with P … ” (para 16 thereof).

(emphasis supplied)

21. The significance of the above quotes is that they made clear the sub-contract between Hsin Chong and the plaintiff provided for a 2-stage procedure for termination: a 7-day notice of intention to do so, followed by the actual notice of termination (the supporting affirmation and the exhibits for use at the ex parte hearing are consistent with that; Hsin Chong’s said notice of intention to terminate was referred to at para 25 to 26 of the supporting affirmation (a 12-page document (consisting of 41 paragraphs)) (para 6, the 23 August decision)).  They also made clear that the earliest time for Hsin Chong to exercise its termination right would be 25 July (the day following the ex parte hearing).

22. What the query ought to have shown to the plaintiff was that the court might not have fully understood the said 2-stage procedure (perhaps because the court documents were read within a short time period).  This should alert the plaintiff to the real possibility the court might not have had the opportunity to read the rest of the court documents as thoroughly as desired.

23. Having been so alerted, and bearing in mind the duty to make full and frank disclosure, the plaintiff ought to have given more assistance to the court in the manner set out below.

24. As observed in the 23 August decision, the duty of full and frank disclosure is trite (para 13 to 15 thereof).  Ultimately it rests on the rationale that, appearing as the only litigant, an applicant must act with the highest good faith (see also, for example, NCS Co Ltd v Bao Harvest Holding Ltd [2012] 5 HKLRD 138, para 30).

25. In Falcon Private Bank Ltd v Borry Bernard Edouard Charles Ltd and Another HCA1934/2011 (9 July 2012), it was said this duty will entail (among other things):

“… identify any defences which, although not yet taken, would be available to be taken by the defendant had he been present at the application provided that the defence is one which can reasonably be expected to be raised in due course by the defendant and not one which can be dismissed as without substance or importance: New Asia Energy Limited And Concord Oil (Hong Kong) Ltd, CACV 347/1998, 3 November 1999 (CA), per Keith JA” (emphasis supplied) (para 53).

26. The plaintiff also argues in this application that the quantity, size and weight of the said machinery have specifically been drawn to the court’s attention at the ex parte hearing.  But I notice that the submission was made apparently with a view to justify the need for a mandatory injunction (rather than to drew the court’s attention to the matters mentioned in para 17 above).

27. In view of the above, I consider that:

(1)   the transcript confirms the conclusion reached in the 23 August decision in that the manner in which the plaintiff’s case was put forth at the ex parte hearing was inadequate to discharge the onerous duty of highest good faith;

(2)   the exchange between the court and the plaintiff shows that the inadequacy ought to be apparent to the plaintiff;

(3)   there is therefore insufficient merits in this aspect of this application to justify leave to appeal to be given.

28. Finally, although the passages in Hong Kong Civil Procedure 2012, Vol 1 (quoted in the 23 August decision (para 13 to 15)) referred to disclosing the material facts in the supporting affidavit (as opposed to its exhibits), I do not consider the learned authors to be saying that the law limits the applicant’s duty to do only that; rather, that was only meant to be an instance of his broader duty of highest good faith.  What the law requires of him is to present the case in the fairest possible manner (see para 24 to 25 above).  As to what precisely needs to be done is a matter which varies with the circumstances of each case.

(b)  Urgency

29. Before considering this aspect, the underlying legal principles should be re-stated.  During the hearing of this application, the parties’ attention has specifically been drawn to the following authorities (in chronological order):

(a)   Seapower Resources International Ltd and Others v Lau Pak Shing and Others HCA 10715/1993 (15 December 1993) (especially para 15 to 16, p 9);

(b)   L v C CACV 333/2003 (27 April 2004) (especially para 6 to 7);

(c)   Slik Hong Kong Co Ltd v Gerald Merlyn Rhoslyn Evans and Others HCA 1424/2005 (25 July 2005) (especially para 1 to 6).

30. The court in the Seapower decision made a graphic description of what “urgency” should mean in this context:

“Ex parte applications should only be made where either the delay would cause to the Applicant injustice or the Defendant would take action which would nullify the effect of the injunction. An ex parte injunction goes against the normal way litigation is conducted. It is an infringement of the rights of natural justice of each party to be heard. Those making such applications have a duty to bear that in mind and they cannot pass their responsibility to the Court when they do so.

The need for an ex parte application in this case was sought to be put upon the following grounds. First of all, urgency. For an ex parte application for an injunction to be urgent on the grounds of urgency it must be so urgent but you cannot give even five minutes warning to the other side. Here, solicitors were instructed for the Defendants, at least the 1st Defendant. The Plaintiffs’ solicitors well knew it. The partners of the firm well knew it. There was no justification for not even making a telephone call or sending a fax, let alone giving 48 hours notice that an application was to be made” (emphasis supplied) (p 9 thereof).

31. The court in effect echoed this in the Slik Hong Kong decision:

“[after referring to passages in Brand, Farrar Buxbaum v Samuel-Rozenbaum Diamond HCA 5191/1998 (8 May 2002), para 24 (‘where … there is literally no time to warn the defendant’) and 28 (‘if there was genuine urgency … the proper course was … to take out an inter parte application, … with time abridged, or … to make an ex parte application on notice …’); and to those in the Seapower decision (above)].

As mentioned above [para 5 (nowadays it does not need to wait very long to list a matter for an inter partes hearing)], an inter parte hearing can be arranged within a relatively short time …” (para 3, 5 and 10 thereof).

32. The L v C decision contains quotes from the English authorities TRP Ltd v Thorley (unrep) (English court of appeal, 13 July 1993) and Re First Express Ltd [1991] BCC 782, 785.  Thus,

“In view of the importance of this point I would like to quote from the judgments of Hoffmann LJ, as he then was, and Sir Thomas Bingham MR in the case of TRP Limited v Thorley (Court of Appeal, 13 July 1993). The judgments are, regrettably, unreported but the Lexis Transcript records Hoffmann LJ as saying:

‘In my judgment the judge should not have entertained the application ex parte and I venture to repeat what I said in Re First Express Limited which was reported in [1991] BCC 782 at page 785.

‘It is a basic principle of justice that an order should not be made against a party without giving him an opportunity to be heard. The only exception is when two conditions are satisfied. First, that giving him such an opportunity appears likely to cause injustice to the applicant, by reason either of the delay involved or the action which it appears likely that the respondent or others would take before the order can be made. Secondly, when the court is satisfied that any damage which the respondent may suffer through having to comply with the order is compensatable under the cross-undertaking or at the risk of uncompensatable loss is clearly outweighed by the risk of injustice to the applicant if the order is not made.

There is, I think, a tendency among applicants to think that a calculation of the balance of advantage and disadvantage in accordance with the second condition is sufficient to justify an ex parte order. In my view, this attitude should be discouraged. One does not reach any balancing of advantage and disadvantage unless the first condition has been satisfied. The principle audi alterem partem does not yield to a mere utilitarian calculation. It can be displaced only by invoking the overriding principle of justice which enabled the court to act at once when it appears likely otherwise injustice will be caused.’

The rules require only two clear days’ notice and leave can, if necessary, be obtained for abridgement.  Even in cases which are too urgent for formal notice of any kind there is no reason why informal notice of an application should not be given by facsimile or telephone.”

“Sir Thomas Bingham MR had this to say:

‘So far as the substance of this matter is concerned I agree with the judgments which My Lords have delivered and I agree with the order which they propose. I do, however, wish to endorse and highlight the observations of My Lord, Lord Justice Hoffmann, concerning the procedure which was adopted in this case. Applications for injunctions are governed by Ord.29 of the Rules of the Supreme Court and in Ord.29 r.1(2) one finds the following:

‘(2) Where the applicant is the plaintiff and the case is one of urgency such application may be made ex parte on affidavit but, except as aforesaid, such application must be made by a motion or summons.’

That rule is the subject of comment in para 29/1/8 on page 514 in volume 1 of the current White Book where one finds among other statements the following:

‘Though this rule authorises ex parte applications by the plaintiff, such an application for an injunction will not be granted unless it is made promptly, and it must be shown that there are strong grounds to justify its being made ex parte.’

Again, ex parte injunctions are for cases of real urgency where there has been a true impossibility of giving notice of motion.

These statements are unsurprising since it is on the face of it plainly contrary to the principles of natural justice that any judicial order adversely affecting a party’s interests should be made against him without his being given a reasonable opportunity of being heard. That is the simple overriding rule on which our system of justice depends. The rule is not, however, absolute and unqualified. Derogations are permitted in certain very limited and exceptional circumstances, the most obvious of these so far as the granting of injunctions is concerned being where the situation is one of such extreme urgency that there is literally no time to warn the defendant of what is proposed or where the purpose of the injunction will or may well be frustrated if the defendant is informed of what is proposed or where the defendant simply cannot be found. The exceptional nature of the circumstances must, however, be stressed. They are the exception and not the norm. Even when time does not permit application on full notice it is highly desirable to inform the other party that the application is to be made ex parte so that he can if he wishes attend and make such representations as he wishes.’

I have quoted extensively from these judgments because, although they contain what is clear and well-established law which has been reiterated in judgments in Hong Kong, it is apparent and confirmed by the submissions made by counsel that these highly important principles are being disregarded” (emphasis supplied) (para 6 to 8 thereof).

The quoted passages were probably the origin from where the courts’ observations (also quoted above) in the Seapower decision and the Slik Hong Kong decision were founded.

33. In this connection, the following part of the plaintiff’s submission in this application is also relevant:

“… the Plaintiff was aware that the Defendant needed time to remove its machinery from [the said site], and would have always allowed them reasonable time to do so” (para 42 thereof).

34. It is unclear from the quoted passage if the plaintiff is agreeable to such a period being given to the defendant for complying with the ex parte order (despite the use of the word “immediate” in the order).  As a matter of reality (that is, considering the quantity, size and weight of the said machinery), it seems the plaintiff would have not much choice but to so agree.

35. In any event, since it is the plaintiff’s own case Hsin Chong regarded the failure to secure the removal of the said machinery as a contractual breach, any removal commencing from 25 July would not necessarily have prevented Hsin Chong from terminating the contract (Hsin Chong having served the notice of intention to do so earlier); this is because, by then, the breach would have already taken place.

36. Despite the plaintiff’s arguments in this application, I do not find any substance in the complaint to the effect I erred in concluding there was no “such extreme urgency that there is literally no time to warn the defendant”:

(1)   there has been on-going correspondence (involving at times cross-allegations of contractual breach) among Hsin Chong, the plaintiff and/or the defendant commencing (at the earliest) from March 2012, or (at the latest) from May or June 2012 (para 9, the 23 August decision);

(2)   the defendant’s lawyers already indicated to the plaintiff they would vigorously defend any injunction application (para 25, the 23 August decision);

(3)   the first “summons day” (Friday 27 July 2012) was only 3 days after the ex parte hearing (Tue 24 July) (para 26, the 23 August decision);

(4)   the matters mentioned in para 16 to 17 above and 33 to 35 above.

37. This aspect of this application thus has no reasonable prospect of success at the intended appeal either.

CONCLUSION

38. Accordingly, this application for leave is refused.

COSTS ORDER

39. The plaintiff agrees that the costs of this application should be awarded to the defendant if this application is refused.  There will thus be an order that those costs be paid by the plaintiff to the defendant.

40. I consider summary assessment of costs to be appropriate. The above costs shall be so assessed.  For this purpose:

(a)   the defendant be at liberty to lodge with court and serve a statement of costs within 7 days from today;

(b)   the plaintiff be at liberty to lodge with court and serve a statement of objections within 7 days thereafter.