MARCUS PRAETORIUS AND OTHERS v. HEAD ARCHITECTURE AND DESIGN LTD

HCMP 2846/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO 2846OF 2016

(ON AN INTENDED APPEAL FROM HCA NO 1057 of 2013)

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JUDGMENT

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Hon Lam VP (giving the Judgment of the Court):

1.  On 13 May 2016, Deputy High Court Judge Le Pichon [“the Judge”] dismissed an appeal by the 3^rd Plaintiff against an order made by Master Chow requiring security for costs in the sum of $700,000 to be paid into court. The security had been paid.

2.  The 3^rd Plaintiff applied for leave to appeal against the decision of 13 May 2016 on 29 June 2016 and the Judge refused leave on 6 October 2016.

3.  By a summons of 20 October 2016, the 3^rd Plaintiff renewed the application for leave before us.

4.  Counsel for the 3^rd Plaintiff requested in his written submissions for the matter to be dealt with on papers without oral hearing. 

5.  There is an issue on the timing of the application for leave: the Judge held that the 3^rd Plaintiff’s application was out of time whilst Mr Cohen (for the 3^rd Plaintiff) submitted that it was made within time in view of the legal aid stay occasioned by the application for legal aid by the Third Party. 

6.  Having considered the substantive merit of the application, we do not find it necessary to resolve that issue.  In the absence of substantive submissions from Mr Cheuk on the effect of the legal aid stay triggered by the Third Party who was not a party to the security for costs application, we are not minded to determine that issue summarily.  Instead, we shall proceed on the assumption that the 3^rd Plaintiff did apply within time for leave before the Judge.

7.  It is well settled that this Court cannot grant leave unless the intended appeal has a reasonable prospect of success or there is other reason in the interest of justice for leave to be granted.

8.  Having read the written submissions of counsel, we are of the view that the intended appeal has no merit and there is no prospect of success.  We also do not see any other reason in the interest of justice to warrant leave being granted.

9.  Three main points were relied upon by Mr Cohen:

(a) The order affected 1^st and 2^nd Plaintiffs who were not parties to the summons for security for costs;

(b) The Judge erred in holding that the Defendant has met the threshold burden in showing that the 3^rd and 4^th Plaintiffs will not be able to pay the costs of the Defendant; and

(c) The Judge erred in rejecting the relevance of the sanctioned payment. 

10.  We are of the clear view that the first point is not open to the 3^rd Plaintiff.  There is no appeal against the order by the 1^st and 2^nd Plaintiffs. The security had been paid and the position of the 1^st and 2^nd Plaintiffs is not prejudiced.  We cannot see any reason why we should grant leave to the 3^rd Plaintiff to permit it to capitalise on a point which, if meritorious, should have been advanced by the 1^st and 2^nd Plaintiffs.  Had the 3^rd and 4^th Plaintiffs failed to pay the security, there could be nothing wrong in principle to have the action dismissed at least as far as they were concerned.  The Defendant can then consider whether it is in their interest to contest the validity of the assignment by the 1^st Plaintiff to the 4^th Plaintiff. 

11.  On the second point, it is clear from the Reasons of Decision of 13 May 2016 that the Judge assessed the evidence on the facts of this particular case.  The Judge did not purport to lay down any general approach.  Thus, she said at [27] that what should suffice would depend on the circumstances of each case.  At [28] she summed up her view as follows:

“ Where a company professes to trade but information regarding its activities is not readily available, that is a matter that obviously gives rise to concern as to whether it is a company of substance and genuinely engaged in trading. In the present case given the circumstances referred to, I have no difficulty in reaching the conclusion that the threshold test has been met and therefore the evidential burden shifted to International but it has not seen fit to provide evidence in that regard.”

12.  We do not find any error of law or palpable error on facts in such conclusion.  This Court has no basis to interfere with the finding by the Judge.  With respect, we do not accept Mr Cohen’s submission that the Judge shifted the burden simply on account of the absence of a website of the 3^rd Plaintiff.  As can be seen at [22] and [23] of the judgment, the Judge took account of a host of matters.  We do not find any flaw in the approach of the Judge in the circumstances of this case. 

13.  On the third point, the Judge had discussed the relevant authorities at some length at [30] to [50] of the judgment.  In particular, [49] and [50] are highly pertinent for present purposes:

“ 49. In the context of a claim in excess of $12 million, a sanctioned payment of $1 million does not of itself imply recognition of a strong claim or a claim of substance or that International is bound to recover at least $1 million.  There may be a host of other considerations such as professional time and resources to be invested in litigation that are better deployed elsewhere, particularly where litigation is likely to last for several years.  Business and professional considerations may dictate or contribute to the level of the sanctioned payment.  I cannot see that on the facts of this case it has any practical relevance.

50. The question was put to Mr Cohen as to how that circumstance if taken into consideration would affect the exercise of the court’s discretion.  All that was said was that would go into the basket of considerations in the weighing exercise.  I hasten to emphasize again that it would be quite wrong to equate the amount paid in with the worth of International’s claim.  If it is a circumstance to be taken into consideration in the present case, it would make no difference to the outcome.  Its impact (if any) on the ultimate decision is at best negligible and is certainly not a matter that would tip the balance.”

14.  The Judge was clearly aware of the issues in the action, having summarised them at [5] to [8] of the judgment.

15.  Notwithstanding the findings by the Judge at [49] and [50], Mr Cohen did not advance any effective submissions to address the same.  Instead, counsel simply focused on the admissibility of sanctioned payment in the context of an application for security for costs. 

16.  In light of the issues in dispute and the defence case, it appears to us that the Judge was plainly right in her assessment of the relevance of the sanctioned payment in the present circumstances.  It is not a clear cut case of the Defendant being liable to the Plaintiff for part of the claim.  If the defence case is made out, the Defendant would not be liable at all.

17.  As the Judge said, the claim of the Plaintiffs was quantified in the Statement of Claim at $12,204,383.07.  Having regard to the particulars of loss and damages, a sanctioned payment of $1,000,000 is not referable to any items in the particulars.

18.  In light of that, it is plainly open to the Judge to conclude that the sanctioned payment is a forensic tactic rather than an admission of any parts of the claims.  

19.  Further, the evidence shows that the Defendant had already incurred costs in the sum of $1,071, 602.50 and the estimated future costs (as at 7 October 2015, see the second affirmation of Mr Lewington, paragraph 5) is $688,500. 

20.  Against this background, Mr Cohen did not advance any submission to demonstrate that the sanctioned payment in the present case could be regarded as partial admission of liability to the tune of $1,000,000 by the Defendant.

21.  One should not lose sight of the rationale for paying regard to sanctioned payment or payment into court in the context of an application for security for costs as discussed in the authorities relied upon by Mr Cohen.  In Parkinson & Co v Triplan Ltd [1973] 1 QB 609 at 626 and 627, Lord Denning MR explained the relevance of payment into court as showing that there is substance in the claim and His Lordship drew a distinction between payment into court which is on par with an admission of money due and a payment into court to get rid of a nuisance claim.  These were said in the context that security would not be ordered if the application is pursued to stifle a genuine claim.  At p.628B, Cairns LJ formulated the question as follows: “taking into account all the circumstances of the case, including the amount of the offer [viz amount of payment into court], is it likely that the claimants here would recover more than [the sum asked for by way of security]?”

22.  We do not think Tang JA (as he then was) intended to depart from that rationale in KJM Industries Ltd v JPM Resources (HK) Ltd [2005] 4 HKC 100.  In that case, the payment into court was clearly an admission of liability up to US$118,534.58: the pleadings clearly borne out such admission.  It was in such circumstances that the Court of Appeal in that case reversed the judge’s reference to the payment into court as a strategy, see p.102H to I.

23.  In Tse Tsz Chong v Law Sze Man [2015] 1 HKLRD 1120, this Court held that Order 22 Rule 25(2) does not prevent the disclosure of a sanctioned payment in interlocutory proceedings.  However, under common law, it is not appropriate to disclose such payment if it will cause embarrassment to the court or unfair prejudice to a party in the determination of the interlocutory application in question.

24.  The Court went on to explain that if liability is relevant in the context of the interlocutory application, using sanctioned payment as evidence of weakness in the defence case on liability can be an embarrassment or prejudice, see [14].

25.  Further, at [15], the following was said:

“ … there are occasions where a plaintiff may wish to refer to a sanctioned payment as showing that a defendant acknowledged the claim’s worth at a particular level. In our view, this is not a legitimate point to take. To start with, there could be many reasons behind the making of a sanctioned payment at a particular level. It is speculative to draw an equal sign between the amount of a sanctioned payment and a fair assessment of the worth of a claim. ...”

26.  At [16], this Court explained that such reference to sanctioned payment is against the spirit of the without prejudice nature of the statutory scheme for sanctioned payment.  See also [19].

27.  In our judgment, these considerations apply equally in the context of an application for security for costs.  Bearing these in mind, we respectfully agree with the Judge’s approach at [42] and [43] of her judgment. 

28.  The Judge had correctly applied that approach and her analysis at [49] and [50] is in line with Tse Tsz Chong v Law Sze Man, supra.  That analysis demonstrates that the sanctioned payment in the present case could not be evidence of the strength of the Plaintiffs’ case and as such has no relevance in the determination of the application for security for costs. 

29.  Further, since the security had been paid, there cannot be any suggestion that the order for security would stifle the pursuit of the claim. 

30.  For these reasons, we dismiss the summons of 20 October 2016 with costs.  We find the application to be so devoid of merit that we should order costs on indemnity basis.  Having considered the statement of costs of the Defendant, we fixed the costs of the Defendant in this application at $74,334 and the 3^rd Plaintiff has to pay such costs to the Defendant forthwith.

31.  We are also of the view that the application is totally without merit.  Pursuant to Order 59 Rule 2A(8), the Rules of the High Court, we make an order that no party may request our refusal of leave to be reconsidered at an oral hearing inter partes.