SCHINDLER LIFTS (HONG KONG) LTD v. NIKKO SERVICES LTD

DCCJ2263/2013

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 2263 OF 2013

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DECISION

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1.  This is a case related to a contract dispute which has been determined in DCCJ1569/2008; being dissatisfied with the judgment, the Defendant applied and obtained leave to appeal. During an adjournment of the appeal, the parties entered into a written agreement settling the appeal (“the settlement agreement”). The present case is related to the settlement agreement. After the exchange of pleadings, the parties took out three summonses in total.

2.  The Plaintiff took out a summons on 27 September 2013 for security for costs and general directions (“the first summons”), whereas the Defendant took out two summonses on 4 October 2013 (“the second summons”) and 22 October 2013 (“the third summons”) ; by the second summons, the Defendant applied for striking out and the return of HK$50,000 paid under the settlement agreement whereas in the third summons he made further applications pursuant to various Orders of the Rules of District Court.   

Background

3.  The Plaintiff is a company incorporated in Hong Kong and at all material times carried on business as a registered lift and escalator contractor.  The Defendant is a company incorporated in Hong Kong.

4.  The parties entered into a written contract dated 27 January 2007 for the sale of used lift parts (“the second hand parts agreement”), the Plaintiff being the seller and the Defendant being the buyer.  Dispute arose, The Plaintiff issued proceedings in the District Court (DCCJ 1569/2008) for the recovery of the balance of the sale price, and the Defendant raised a counterclaim in the same case for compensation for goods paid but yet to collect and damages for breach of contract including storage fees. 

5.  The case DCCJ1569/2008 was heard and judgment was given in the Plaintiff’s favour, the Defendant was ordered to pay the Plaintiff HK$169,040 plus interest and costs (“the District Court judgment”).  The Defendant obtained leave to appeal the District Court judgment.  Time being the Plaintiff filed a winding-up petition against the Defendant (HCCW 251/2010)

6.  The Defendant’s appeal was heard on 8 November 2012, and later on the same day, the appeal was adjourned sine die for with liberty to restore by the court’s own motion within 10 weeks to allow the parties to discuss settlement. During the adjournment of the appeal the parties and Mr Lau (the Defendant’s representative) entered into a written agreement that after the Defendant and Mr Lau paid the Plaintiff a settlement sum in the amount of HK$50,000 (Clause 1), and subject the dismissal of the Plaintiff’s winding-up petition (Clause 2), all the outstanding matters between the parties, which include the enforcement of the District Court judgment, the pending Defendant’s appeal be settled (“the settlement agreement”).   

7.  On 21 November 2012 the settlement sum was duly paid to the Plaintiff by the Defendant’s solicitors.   By a letter dated 22 November the Plaintiff acknowledged receipt the settlement sum, asking to return a copy of the signed settlement agreement and to arrange to have the Plaintiff’s winding-up petition dismissed.   The Defendant did not respond, and two further letters were issued by the Plaintiff’s solicitors on 4 December and 27 December.   

8.  By a letter dated 3 January 2013, the Defendant’s solicitors returned a copy of the signed settlement and said they had no further instructions from the Defendant in relation to the matters mentioned in the Plaintiff’s solicitors’ earlier letters; but reminded the Plaintiff to take all necessary steps to dismiss the winding-up petition.  Notice to act in person was later filed by the Defendant on 7 February 2013.

9.  Further correspondence was exchanged, but no progress was obtained on the matters.  Time has been wasted, hoping to save costs, the Plaintiff wanted to get the Defendant to have legal representation, and resolve the outstanding issues, including the dismissal of the winding-up petition on paper.  Yet the Defendant remained unrepresented during all the material time. 

10.  Despite there is no dismissal of the winding-up petition, the Plaintiff tried to persuade the Court to order withdrawal of the appeal and the dismissal of the Defendant’s application for leave to adduce fresh evidence on an undertaking to ask the Companies Court to dismiss the winding-up petition by a letter dated 14 March 2013.

11.  Follow up the Plaintiff’s application, the Court made certain comments/directions and informed the same to the parties by letter dated 20 March.  The Defendant was directed to inform the Court if he agreed to the Plaintiff’s request.  The Defendant by a letter dated 26 March informed the Court that he did not agree to such arrangement and stated his concerns.

12.  By a letter dated 28 March 2013, the parties were informed the Court directed them to give consideration to disposing of the outstanding actions in the following manner:

1. In HCCW250/2010, Schindler Lifts (Hong Kong) Ltd through Messrs Haley & Co writes to obtain the consent of the Official Receiver to a dismissal of the petition with no order as to costs, save that Nikko Services Ltd pays the costs of the Official Receiver.

2. Upon the Official Receiver giving his consent, Messrs Haley & Co are to draw up two consent summonses as follows:

(A) In HCCW251/2010, the consent summons is for the dismissal of the petition with no order as to costs, save that Nikko Services Ltd pays the costs of the Official Receiver.

(B) In CACV250/2010, the consent summons is for:

(i) Withdrawal of the appeal;

(ii) Dismissal of the summons dated 2 November 2012; and

(iii) No order as to the costs of the appeal and of the summons.

3.     After the consent summonses are signed by the parties, Messrs Haley & Co will file them in the respective actions, and fix a date for them to be heard before The Honourable Madam Justice Chu JA (in the case of HCCW251/2010, sitting as an additional judge of the Court of First Instance) for hearing sequentially on the same day for an order to be made in terms of the consent summonses.

13.  The parties indicated to the Court that they agreed to the arrangement proposed by letter respectively.  By a letter dated 9 April 2013 the Court directed the parties proceed to dispose the matter accordingly.

14.  The Plaintiff has difficulties in obtaining consent from the Official Receiver to the dismissal of the winding-up petition,  this matter was related to the Court  by a letter dated 2 May 2013.  The matter was ultimately resolved and the parties were directed to proceed to deal with the consent order/summonses for the disposal of the two sets of proceedings by a letter dated 10 May 2013.

15.  The Plaintiff’s solicitors by letter dated 10 May 2013 enclosed two consent summonses and invited the Defendant to attend their office on 15 May 2013 to execute the same.  The Defendant by letter to the Plaintiff’s solicitors dated 14 May 2013 stating that the matters stated under Paragraph 2 of the settlement agreement fail to materialize within 6 months and queried whether the Court would accept a consent summons signed by a litigant in person.

16.  Further correspondence was made by the parties to the other side and the Court, it is suffice to say that the Defendant did not sign the consent summons for the appeal and only returned a copy of the signed consent summons for the winding-up petition to the Plaintiff’s solicitors on 16 May 2013. 

17.  The Plaintiff’s solicitors by a letter dated 20 May 2013 provided an update of the matter to the Court and stated the Plaintiff’s position that the Court should only dismiss the winding-up petition if it also dismisses the appeal.

18.  There is a court hearing on 21 May 2013 for the Plaintiff’s applications for the dismissal of the appeal and the winding-up petition.   The Defendant was represented by Mr Lau, who asked for an adjournment so he could consider whether the Defendant wished to consent to the withdrawal of the appeal.  The applications were then adjourned to 10 June.  The Defendant was directed to inform the Court by 5 June, whether it consented to the withdrawal of the appeal and the dismissal of the winding-up petition.

19.  The Defendant failed to inform his stance by 5 June 2013.  The Court by a letter directed 6 June 2013 directed the Defendant to inform the Court in writing with copy to the Plaintiff, whether it seeks or agrees to the withdrawal of its appeal.  The Defendant filed and served his submission dated 7 June for the continuation of the appeal.

20.  On 10 June 2013, the Court continued to hear the Plaintiff’s applications in relation to the withdrawal of the appeal and winding-up petition, during which the Defendant did not agree to the withdrawal of the appeal, while the Plaintiff’s position remained the two summonses be dealt with together.  Giving the stance of the parties no order was made for both summonses except costs order.

21.  On 21 June 2013 the Plaintiff issued the present proceedings to enforce the settlement agreement and the Defendant was served the Writ of Summons with the Endorsement of Claim on the same day.  On 25 June the Court wrote to the parties asking them to inform the listing officer once they are ready to fix a hearing date for the appeal.  The Plaintiff by letter dated 26 June informed the Court about the present proceedings to enforce the settlement agreement and indicated he would apply to the Court for an order staying the appeal, copy of which was provided to the Defendant.   

22.  The Plaintiff filed the Statement of Claim on 28 June 2013.  On the same date the Plaintiff by letter requested the Defendant to state his position to the stay of the appeal pending the determination of the present proceedings. By a letter dated 3 July the Defendant indicated that he is yet to received transcripts allowed, he would further consider his position after he received the transcripts. 

23.  The Defendant filed his Defence for the present proceedings on 5 July 2013 and a Supplementary Defence and Counterclaim on 2 August 2013. Thereafter, the parties took out the three summonses in question between 27 September and 22 October 2013.

Discussion

First Summons

24.  By this summons the Plaintiff applies for security for costs in the capacity of a defendant in the counterclaim (Order 23 rule 1(3)) and directions related to discovery, witness statements, appointment of case management conference and costs.

25.  During the course of discussion, the Defendant applied to withdraw his counterclaim, the Plaintiff has no objection but requested to have the counterclaim dismissed; the Defendant has no objection to this cause.  The parties has no objection that the costs should follow the event and to have the costs related to the counterclaim and the security of costs application summarily assessed but the Defendant requested time for payment.

Discovery

26.  Order 24 of the Rules of the District Court concerns discovery and inspection of documents.  Mutual discovery of documents relating to matters in question in the action commencement within 14 days after the close of pleadings. Parties to an action shall make discovery by exchanging lists of documents, by making and serving on that other party a list of the documents which are or have been in his possession, custody or power relating to any matter in question between them in the action.

27.  Since the parties not able to agree upon the exchange of list of document, the plaintiff applies for discovery, I will direct the Defendant do so accordingly.  The rest of the Plaintiff’s summons is about case management direction, the parties are directed to observe the Practice Direction 5.2, and the Plaintiff should take out a Case Management Summons for an appointment of case management conference before a Master, thus I make no order to these applications.  Minimal time was spent to the Plaintiff’s application under paragraph 2, 3, and 4 of the First Summons; I considered it is appropriate to make no order as to costs for these matters.

Second Summons

28.  By this summons the Defendant applies for striking out the Endorsement of Claim and paragraph 11 and 12 of the Statement of Claim, in substance he is applying to strike the Statement of Claim under Order 18 rule 19 of the Rules of the District Court, the return of the settlement sum in the amount of $50,000 and to set down his Counterclaim. 

29.  Order 18 rule 19 of the Rules of District Court provides that:

“(1) The Court may, either of its own motion or on application, at any stage of the proceedings order to be struck out or amended any pleading or or the indorsement of any writ in the action, or anything in any pleading or in the indorsement, on the ground that –

(a) It discloses no reasonable cause of action or defence, as the case may be; or

(b) It is scandalous, frivolous or vexatious; or

(c)It may prejudice, embarrass or delay the fair trial of the action; or

(d) It is otherwise an abuse of the process of the court;

And may order the action to be stayed or dismissed or judgment to be entered accordingly, as the case may be.

(2) No evidence shall be admissible on an application under paragraph (1)(a).”

30.  The Defendant applies to struck out the Endorsement of Claim, the content of which is as follow:

1.  Damages for breach of an agreement in writing dated 8 November 2012;

2.   A declaration that the defendant is obliged to consent to the withdrawal of Court of Appeal case CACV 250 of 2010 (“the appeal”); and

3.   A mandatory injunction requiring the defendant to consent of the withdrawal of the appeal.

31.  The Endorsement of Claim is repeated in the prayer of the Statement of Claim.  The Defendant also applies to strike out paragraph 11 and 12 and the prayer of the Statement of Claim.  The relevant paragraphs of the Statement of Claim being:

“9.  During an adjournment of the appeal that day the plaintiff and the defendant made an agreement in writing settling the appeal (“the settlement agreement”).

10.  There was an express terms of the settlement agreement that

“After the settlement sum is paid, subject to the dismissal of HCCW 251/10:-

(a) case CACV 250/10 shall be withdrawn with no order as to costs”.

11. There were implied terms of the settlement agreement that:-

(a) the defendant would do all things necessary to achieve the withdrawal of the appeal;

(b) the defendant would co-operate with the plaintiff to achieve the withdrawal of the appeal; and

(c) the defendant would take any and all reasonable steps required to achieve the withdrawal of the appeal.

12.  In breach of the settlement agreement the defendant failed and/or refused to achieve the withdrawal of the appeal and/or co-operate with the plaintiff to achieve the withdrawal of the appeal.”

32.  The term referred in paragraph 10 of the Statement of Claim, provides that subject to the dismissal of HCCW 251/10, the case CACV 250/10 shall be withdrawn with no order as to costs.  It is clear from the part of the term pleaded that the dismissal of HCCW 251/10 is a pre-condition of the withdrawal of CACV 250/10.  Whether the pre-condition has been fulfilled is not pleaded in the Statement of Claim.  Yet according to the submission by Mr Shaw the issues between the parties, as the evidence transpired, should be with the development after the parties agreed to dispose the matter as suggested by the Court, whether there is any extension of the time limit and whether the Defendant entitled to rescind the contract pursuant to Clause 4 of the settlement agreement.   Thus the course of action that the Defendant is in breach of the settlement agreement is not properly pleaded, and amendment of the Statement of Claim is required.

33.  The date of the settlement agreement being 8 November 2012 and the relevant clauses of the settlement agreement are as follow:

1. Nikko and Mr Lau will pay $50,000 to Schindler (“settlement sum”), within 14 days.  Nikko and Mr Lau are jointly and severally liable to pay the settlement sum to Schindler.

2. After the settlement sum is paid, subject to the dismissal of HCCW 251/10:-

(a) Case CACV 250/10shall be withdrawn with no order as to costs;

(b) Nikko’s application in CACV 250/10 for leave to adduce fresh evidence, made on 2 November 2012, shall be dismissed with no order as to costs;

(c) HCCW 251/10 shall be dismissed with no order as to costs, save that Nikko will pay the costs of the Official Receiver.

(d) The $50,000 security for costs paid into court by Nikko on CACV 250/10 shall be paid out to Nikko’s solicitors;

(e) Schindler will take no further steps to enforce its judgment in DCCJ 1569/08.

3. If the settlement sum is not paid by the due date (time being of the essence) Schindler may, at its absolute discretion, enforce this settlement agreement or treat this settlement agreement as repudiated.

4. If any of the events referred to in paragraph 2(a), (b), (c) and (d) above fails to materialise within six months from the date of this settlement agreement, or if Schindler acts in breach of paragraph 2(e) above, Nikko and/or Mr Lau may, at its/his absolute discretion, enforce this settlement agreement or treat this settlement agreement as repudiated and Schindler shall return the $50,000 to Nikko forthwith.

34.  Clause 3 and Clause 4 allow the parties at their absolute discretion to enforce or to treat the settlement agreement as repudiated upon expiry of time stipulated for completion of specific events.   Should the Defendant failed to pay the settlement sum by the due date; the Plaintiff is entitled to treat the agreement as repudiated.  The Plaintiff was aware of the time limit provided under Clause 4, which allows the Defendant similar rights.  The Plaintiff’s solicitors by their letter to the Court dated 4 March 2013 stated “that the settlement agreement provides that if any of items 2(a) to (d) of the settlement agreement are not actioned by 8 May, the defendant may treat the settlement agreement as repudiated and revive the appeal”. 

35.  Mr Shaw attempted to argue that though the opening line of Clause 2 provides that subject to the dismissal of HCCW 251/10 the matters mentioned in the sub-paragraphs (a) to (e) are to happen, however, one of those matters is that under sub paragraph (c) “HCCW 251/10 shall be dismissed with no order as to costs, save that Nikko will pay the costs of the Official Receiver.”  Therefore it is not clear whether dismissal of HCCW 251/10 is a pre-condition, as the dismissal of the winding-up petition and the costs of the dismissal should be referring to the same event.  It may well be the case, but in my view this does not affect the sequence of the event in relation to the rest of the clause, the meaning of Clause 2 is plain, the dismissal of the winding-up is a pre-condition of the withdrawal of the appeal. 

36.  However, after the Plaintiff’s solicitors informed the Court the difficulties they encountered, the Court by a letter dated 28 March 2013 directed them to give consideration to disposing the outstanding actions in the way mentioned in paragraph 12 above, in short the arrangement being upon the Plaintiff obtained the consent of the Official Receiver, the outstanding actions to be disposed of by consent summonses on the same day.  The parties gave their consent to such arrangement, thus the Plaintiff’s solicitors acted accordingly.

37.  Yet the Plaintiff’s solicitors have difficulties in obtaining consent from the Official Receiver, this was related to the Court by a letter dated 2 May 2013.  Time being the 6 months limitation expired on 8 May 2013 but the Defendant did not exercise his rights under Clause 4, because of that the Plaintiff continued to act in accordance to the agreed arrangement. The matter was ultimately resolved and the parties were directed by the Court to proceed to deal with the consent order/summonses for the disposal of the two sets of proceedings by a letter dated 10 May 2013.    I agreed with Mr Shaw that the conduct of the Defendant is such that there is a triable issue whether there is an extension of the time limit to a reasonable time to enable the Plaintiff/ the parties to carry out the agreed arrangement. 

38.  By a letter dated 10 May 2013 the Plaintiff’s solicitors provided two consent summonses with a view to settle the outstanding proceedings as agreed and requested the Defendant to attend their office on 15 May 2013 to execute the same.  On 14 May the Defendant faxed a letter to the Plaintiff’s solicitors, referring to the Court directions by the letter dated 10 May 2013, and stated out the chronology of the matter from his point of view, and indicated that he reserved his rights under Clause 4 of the settlement agreement.

39.  By a letter dated 15 May 2013, the Plaintiff’s solicitors made a note to the fact that the two summonses provided to the Defendant were not returned and the Defendant did not attend their office to execute the same, and then provided the Defendant with another set of consent summonses and invited the Defendant to attend their office on 16 May 2013 to execute the same.  On 16 May 2013, the Defendant faxed a letter to the Plaintiff’s solicitors together with a copy of a signed consent summons for the dismissal of the winding up petition only and indicated he has an application for the appeal case.  The preparation of the consent summonses undoubtedly was in accordance to the agreement between the parties, the signing of the consent summons related to the winding-up petition is prima facie consistent to an act that the Defendant up holding the settlement agreement.

40.  The Defendant by a letter to the Plaintiff’s solicitors dated 19 May 2013 stated out the chronology of the matter from his point of view and indicated that he reserved his rights under Clause 4 of the settlement agreement.  The Defendant did not communicate to the Plaintiff in clear term how he wanted to exercise his rights under Clause 4, time being the Court by a letter dated 6 June 2013 directed the Defendant to inform the Court in writing whether it seeks or agrees to the withdrawal of its appeal, and the Defendant exercised his rights under Clause 4 of the settlement agreement by filing and serving his submission for the continuation of his appeal dated 7 June 2013, I agreed with Mr Shaw with the development after 8 May 2013, there is a triable issue whether the Defendant is entitled to rescind the contract, if not then he is in breach of the contract. 

41.  The principles on striking out are clear. It is only in plain and obvious cases that the court should exercise its summary powers to strike out the endorsement on any writ or any pleading under Order 18 rule 19. Disputed facts are to be taken in favor of the party sought to be struck out. The court should not decide difficult points of law in striking out proceedings. The claim must be obviously unsustainable, the pleading unarguably bad and it must be impossible, not just improbable, for the claim to succeed before the court will strike it out. It is for the party seeking to strike out to demonstrate that the case is a plain and obvious one in which the other party's claim is bound to fail.

42.  On further consideration of the pleading, I must say that it is defective.  In my judgment, the meaning of the express term as pleaded in paragraph 10 is plain, “subject to the dismissal of the HCCW 251/10”, means the dismissal of the HCCW 251/10 is a pre-condition of the withdrawal of the CACV 250/10 mentioned in sub-paragraph (a).   Yet whether the pre-condition has been fulfilled is not pleaded, whether the pre-condition is not applicable is not pleaded, whether the term as a whole is ambiguous is not pleaded, thus the pleading fails to show there is a breach of the implied term of the contract.  

43.  Yet it is not so bad that it could not be amenable by amendment.  Strike out on technicality would not prevent the Plaintiff to take out another claim. Too much time has been spent by the parties on matters related to the second hand parts agreement made in 2007.  Justice requires me to consider merit and not only technicality.    I agreed there is a reasonable cause of action and triable issues of mixed law and fact involved.

44.  After due consideration I allow the claim to continue and the Plaintiff to amend his Statement of Claim within reasonable time and the costs related and incidental to the amendment to the Defendant in any event.  In these circumstances I shall make a costs order nisi that costs related to the striking out application to Defendant in the cause.

45.  For the rest of the Defendant’s application, the recovery of the settlement sum cannot be made by interlocutory summons, I shall dismiss this application.  Whether to set down a matter/case for trial should be considered by the Master during the case management conference or by paper disposal where the Master considered appropriate, thus there is no order as to application under paragraph 4 of the Second Summons.  For paragraph 3 and 4 of the summons, minimal time was spent, and the Plaintiff did not file any affirmation nor submission for this part of the summons, and I shall make a costs order nisi that be no order as to costs.

Third Summons

46.  By this summons the Defendant made various applications pursuant to various Orders of the Rules of District Court.  Under paragraph 2, the Defendant applies to consolidate the present case with the appeal case pursuant to Order 4 rule 9, the two cases simply related to different issues and different nature, I shall dismiss this application.  For paragraph 3 and 4, the application is taken to be adduced evidence related to the second hand parts agreement made in 2007, these applications simply irrelevant, I shall dismiss these applications.

47.  For applications under paragraph 1, 5, and 7, these should be considered during the case management stage.  For application for “sanctioned offer” parties are free to make their sanctioned offer according to Order 22 and no application is required.  It seems to me the most appropriate order, in the circumstances is to make no order for these applications.

48.  For this summons, minimal time was spent, and the Plaintiff did not file any affirmation nor submission for this summons, and I shall make a costs order nisi that be no order as to costs for this summons.

Order

1.   The Amended Counterclaim filed on 28 August 2013 be dismissed.

2.   The Defendant shall file and serve his list of document on or before 10 December 2013.  There be inspection of documents, if necessary, within 7 days thereafter.

3.   There be no order as to paragraph 1, 3 and 4 of the Plaintiff’s summons dated 27 September 2013.

4.   Plaintiff is to take out summons for the amendment of his Statement of Claim with copy of the draft Amended Statement of Claim on or before 24 December 2013.   The costs related and incidental to the amendment be to the Defendant in any event.

5.   The Defendant’s application for recovery of settlement sum is dismissed.

6.   There be no order as to Paragraph 4 of the Defendant’s summons dated 4 October 2013.

7.   The Defendant’s application under Paragraph 2, 3 and 4 of his summons dated 22 October 2013 are dismissed.

8.   There be no order as to paragraph 1, 5, 6 and 7 of the Defendant’s summons dated 22 October 2013.

9.   Costs related to the dismissal of Amended Counterclaim and the application for security of costs to the Plaintiff.  The costs to be assessed summarily and the Plaintiff is to submit of his statement of Costs to court with copy to the Defendant within 7 days from the date hereof, and the Defendant do submit his comment to the Plaintiffs’ statement of costs to court with copy to the plaintiffs within 7 days thereafter.  Summary assessment to be conducted by way of paper disposal.

10.   Costs related to the striking out application to the Defendant in the cause.  This is a costs nisi and be made absolute within 14 days.

11.   There be no order as to costs in relation to paragraph 2, 3, 4 of the Plaintiff’s summons dated 27 September 2013. This is a costs nisi and be made absolute within 14 days.

12.   There be no order as to costs in relation to paragraph 3 and 4 of the Defendant’s summons dated 4 October 2013. This is a costs nisi and be made absolute within 14 days.

13.   There be no order as to costs in relation to the Defendant’s summons dated 22 October 2013. This is a costs nisi and be made absolute within 14 days.