LINK FISH IMPORT & EXPORT S.L. v. MULTIPLY IMPORT & EXPORT HK LTD AND ANOTHER

HCMP 331/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 331 OF 2016

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REASONS FOR DECISIONS ON COSTS

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1.  There are two matters before me:

(i) the question of costs in respect of the 1^st Defendant’s summons dated 30 March 2016 to strike-out the originating summons (“the Striking-out Summons”)[1]; and

(ii) the giving of directions for the future conduct of the case following the Plaintiff’s summons dated 31 March 2016[2] converting the action to one begun by writ (“the Conversion Summons”).

2.  In the hearing on 30 November 2016, I ordered that there be no order as to costs in respect of the Striking-out Summons.  For the Conversion Summons, there is no dispute that the action should continue as if the same has been commenced by writ.  I therefore so ordered, and I also gave directions for the exchange of pleadings and discovery.  I also ordered that the costs of the Conversion Summons be costs in the cause.  I now give my reasons for the said costs orders.

3.  The background facts of this case have been fully set out in the Decision of Madam Recorder L Chan, SC handed down on 30 June 2016.  In short, the Plaintiff is a company incorporated in Spain and engages in the business of sale and purchase of promotional items.  50.01% of the shares of the Plaintiff is held by Mr Pedro Manuel Lopez Moreno (“Pedro”) through his corporate vehicle, whilst the remaining 49.99% is held by Ms Maria-Teresa Aguado Mateos (“Maria”) through her corporate vehicle and nominee.

4.  Both Pedro and Maria are directors of the Plaintiff.

5.  It is the Plaintiff’s case that Maria had committed a fraud against the Plaintiff by creating fictitious transactions with companies owned or controlled by her, including the 1^st and 2^nd Defendants, which required the Plaintiff to make payments to these companies.  On 15 February 2016, the Plaintiff obtained an ex parte Mareva injunction (“the Injunction”) against both Defendants to restrain the disposal of assets.

6.  The 1^st Defendant filed the summons to discharge the Injunction on 17 February 2016.  The summons was fixed for substantive argument before Madam Recorder Linda Chan, SC on 5 April 2016.  In the Decision handed down on 30 June 2016, the learned judge dismissed the discharge application and made an order to continue the Injunction until further order.

7.  The unusual feature of this case is that the Plaintiff commenced the present action by way of originating summons.  In the ex parte hearing on 15 February 2016, DHCJ Yee had already expressed concern whether the action should have been commenced in such manner.  By that time, Mr Brown, counsel for the Plaintiff both in the said ex parte hearing and in the hearing before myself, sought to justify the mode of commencement by saying that the Plaintiff did not anticipate that the Defendants would contest the claim.  If that was the case, there would be no substantial dispute of facts to be determined by the court.

8.  In the hearing, DHCJ Yee had expressly put it on record that if the Defendants intended to contest the proceedings, the Plaintiff should apply to the court to convert the action to one begun by writ “as soon as possible”.  In reply, Mr Brown indicated to the court that such course of action would be entirely appropriate.

9.  Just 2 days after the granting of the Injunction, the 1^st Defendant, on 17 February 2016, filed a summons to discharge the Injunction.  On 18 February 2016, the general manager of the 1^st Defendant, Mr Leong King Yan, made an affirmation in support of the discharge application.

10.  From the contents of such affirmation, it should have been clear to the Plaintiff that the 1^st Defendant is disputing the Plaintiff’s claim, in particular the allegation of fraud, against it.  Under such circumstances, even if the Plaintiff should not be criticised for commencing the action by way of originating summons, the Plaintiff should have taken out the conversion application soon after it knew about the 1^st Defendant’s stance on 18 February 2016.  As agreed by Mr Brown in the ex parte hearing, this would have been most appropriate thing to do.  If the Plaintiff had taken out the conversion application “as soon as possible”, it would not have been necessary for the 1^st Defendant to take out the Striking-out Summons.

11.  On other hand, if the 1^st Defendant’s only challenge is the mode of commencement of proceedings, it would be wrong in principle for the 1^st Defendant to issue the summons to strike-out the Plaintiff’s originating summons.  Even if there was any procedural irregularity regarding the mode of commencement of proceedings, the action itself would not be null or void.  If the 1^st Defendant took the view that the action should not have been commenced in this manner, it should have taken out a summons to covert the present action as one begun by writ and to argue on the issue of costs.  Hence, there was no proper basis for the 1^st Defendant to issue the striking-out application.

12.  In my judgment, both parties have to take some responsibility for the taking out of the striking-out application.  In such circumstances, I consider it just and fair for the court to make no order as to costs for the striking-out application.  I therefore so ordered.

13.  The 1^st Defendant has not yet filed the acknowledgment of service, and the Plaintiff is seeking to rely on such omission to argue that the 1^st Defendant has no locus to make the striking-out application.  As the 1^st Defendant should not have taken out the striking-out application in any event, it would not be necessary for me to deal with this particular argument.  However, I must point out that, under O.12 r.10 of the RHC, acknowledgment of service is to be treated as entry of appearance.  If a defendant fails to file acknowledgment of service in an action commenced by writ, he would be in default of giving notice of intention to defend, and as a result the plaintiff can apply for default judgment under O.13 of the RHC.  There is no corresponding provision for action commenced by way of originating summons.  As the 1^st Defendant has already entered appearance by filing a notice to act and making an application to discharge the Injunction, it would be a non-point now to argue that the 1^st Defendant has no locus to make the striking-out application.

14.  There is no serious dispute between the parties in respect of the Conversion Summons.  However, there is an issue as to whether the Plaintiff should be asked to pay for the costs occasioned by the conversion application.

15.  As I have indicated in the hearing, it was unusual for the Plaintiff to have commenced the present action by way of originating summons.  Most of these claims would involve substantive disputes of facts, and so it would be prudent for a claimant to start such kind of action by way of writ so as to avoid the trouble of making a conversion application at a later stage.  However, Mr Brown is able to refer me to the case of Mesirow Financial Administrative Corporation v Best Link Industrial Co Ltd[3], in which the plaintiff commenced the action by way of originating summons to seek for a declaration that the defendant held the money, which was transferred to it by the plaintiff due to a computer fraud, on trust for the plaintiff.  Though it is always possible to distinguish the facts of that case, I do not think that the Plaintiff should be penalised for commencing the present action by way of originating summons.  In particular, the CJR has removed the former restriction that claims involving allegation of fraud could only be commenced by way of writ.  Further, DHCJ Yee, in the ex parte hearing, accepted that the action could be commenced by way of originating summons, provided that the Plaintiff would make a conversion application as soon as possible in the event that the Defendants expressed their intention to contest the claim.  Hence, I ordered that the costs of the Conversion Summons be costs in the cause.

16.  These are the reasons for the costs orders I made in the hearing.