WESOFT NATIONMARK LTD v. NATIONMARK (H.K.) LTD AND OTHERS

HCA 724/2019 & HCA 1317/2019

[2023] HKCFI 2864

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 724 OF 2019 AND ACTION NO 1317 OF 2019

(TRANSFERRED FROM LBTC NO 1492 OF 2019)

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BETWEEN

(Consolidated by the Order of Master Lai dated 30 August 2019)

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DECISION

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Introduction

1.  On 20 and 21 September 2023 (“the Hearing”), I heard an application by the Plaintiff (“P”) for:

(1) further and better particulars (“FBP”) of the Re-Amended Defence of 1^st to 3^rd Defendants (“D1-D3”); and

(2) FBP of the Defence of 10^th Defendant and 11^th Defendant (“D10-D11”) (“Defence”).

2.  At the end of the Hearing, I ordered inter alia the filing of Answers by D1-D3 and D10-D11 (collectively, “Ds”) to some of P’s requests for FBP and the payment of costs of and occasioned by P’s application by Ds. In respect of P’s application for FBP against D1-D3, I ordered D1-D3 to pay half of P’s costs of and occasioned by P’s application (“the Costs Order”).

3.  The reasons for my orders are given in the Reasons for Decision dated 29 September 2023 (“the Reasons”). This Decision should be read together with the Reasons.

4.  On 3 October 2023, two Notices of Appeal were filed by: (1) D1-D3 to appeal against the Costs Order; and (2) D10-D11 to appeal against the order made by me for D10-D11 to file Answers to Request 4 (“FBP Order”).

5.  By two Summonses both dated 5 October 2023: (1) D1-D3 seek a stay of execution of the Costs Order (“D1-D3 Summons”); and (2) D10-D11 seek a stay of execution of FBP Order (“D10-D11 Summons”), pending the determination of the appeals taken out. The 11^th Affirmation of Chan Siu Fai was filed in support of D1-D3 Summons and D10-D11 Summons.

6.  Directions were given by Mr Registrar S Kwang on 5 October 2023 inter alia for the lodging of written submissions by the parties and paper disposal by me of D1-D3 Summons and D10-D11 Summons.

7.  Counsel for the parties have filed written submissions in accordance with the directions made by Mr Registrar. I now dispose of D1-D3 Summons and D10-D11 Summons on paper.

Applicable Principles

8.  The principles governing an application for stay pending appeal are well-settled. They were set out in Star Play Development Ltd v Bess Fashion Management Co Ltd [2007] 5 HKC 84 (see §§6-10) and have been summarized more recently in Bright Gold Ltd v Mega Well Development Ltd [2019] HKCA 1440 by the Court of Appeal at §13 as follows:

(1) The applicant must show an arguable ground of appeal (viz one with reasonable prospect of success) before the discretion to grant stay is engaged: see Star Play §9(6); Sy Chin Mong Stephen v Lo Shing Kin, CACV 45/2013, 13 March 2013;

(2) Even if arguable grounds exist, there must be other circumstances justifying the deprivation of the successful party the fruit of the judgment. Sometimes, the applicant may do so by showing the existence of strong ground of appeal. Sometimes, the applicant may do so by showing that the appeal would be rendered nugatory if no stay is granted. In either case, the court must also have regard to the prejudice that could be suffered by the successful party if a stay is granted. In all cases where the discretion is engaged, ultimately it is a balancing process with common sense;

(3) In assessing the strength of the appeal for the purpose of a stay application, it is impracticable and undesirable to go deeply into the merits: see Star Play, §9(5). A broad brush approach is called for. Thus, counsel should not attempt to deploy full arguments on law and facts quoting in extenso all the relevant evidence and transcript as if the application for stay is a platform for a rehearsal of the appeal proper. Generally, with the benefit of written skeleton submissions, the court is able to assess whether an appeal has a high prospect of success without lengthy oral submissions from counsel, MKKWH v RKSH, CACV 197/2012, 27 February 2013 at §3. Application for stay of execution should not be a dry run of the appeal, see Ming Hsieh v Xu Zhe [2018] HKCA 390 at §9.

9.  It is also not disputed that for an appeal to a judge against a master’s order as to costs only, in general a judge will not allow an appeal unless it is unreasonable or the master erred in law: see Hong Kong Civil Procedure 2024, Vol 1, §58/1/6 at p 1234.

D1-D3 Summons

10.  In the 11^th Affirmation of Chan Siu Fai, it is simply stated that Ds have been advised and they verily believe that their appeal has a good or at least reasonable prospect of success and they understand that counsel for Ds will make further legal submissions.

11.  In D1-D3’s first round of written submissions of Mr Wong and Mr Yeon, counsel for Ds, (“D1-D3’s Submissions”) it was submitted that D1-D3 have a “good case” against the Costs Order for two key reasons.

12.  First, it is submitted “on a broad-brush approach, it is arguable that D1-D3 should not bear 50% of the costs of P. Instead, D1-D3 submit that they have a good case that P should be liable to D1-D3 for costs incurred in their successful opposition to the overwhelming majority of the requests in the Summons”.

13.  Mr Wong and Mr Yeon therefore do not appear to submit that the broad-brush approach I adopted was an error of law. In D1-D3’s Reply Submissions, it is clarified that “D1-D3 seek to demonstrate that there is a strong likelihood of success of overturning the Costs Order on appeal on the basis that it is unreasonable”.

14.  Even though based on their detailed analysis of the requests that were allowed and disallowed, the time spent at the Hearing and number of pages in the skeleton submissions of P, it was submitted that the requests that were disallowed “took up substantial time”, I fail to see how it is demonstrated that the Costs Order for 50% of P’s costs was unreasonable, particularly when apart from the time spent at the Hearing I also found that a hearing would have been occasioned in any event given that I allowed various requests of P: see the Reasons, §§131 and 134.

15.  Furthermore, I disagree that where a hearing was necessitated to obtain an order against D1-D3 for 3 requests and for 3 other requests, the only reason I did not order them was because they were not necessary after the submissions and clarifications made at the Hearing (see the Reasons, §135), that D1-D3 are “indisputably the winner” as submitted in D1-D3’s Reply Submissions. The fact that voluntary answers to other requests were given previously prior to the Hearing does not detract from the fact that the Hearing was still necessitated to consider the requests for which no voluntary answers were given.

16.  It was submitted in D1-D3’s Submissions that, “precisely because of P’s unreasonable insistence to persist with the [disallowed requests], (despite some answers having already been given by D1-D3 voluntarily in the first place in response to P’s request by way of letter in late-May 2023), costs of D1-D3 incurred by responding to them should be paid by P.” However, I have expressly stated in the Reasons that there was no basis to find that P’s application was unreasonably taken such that costs should not follow the event: see the Reasons, §134.

17.  Second, in D1-D3’s Submissions it was submitted, “if the ‘issue-based approach’ in Waxman v Li Feu Yu [2013] 6 HKC 1312 is adopted instead, D1-D3 still have a good case against the Costs Order” [my emphasis underlined]. Again, it does not appear it is their case (at least, they have not expressly so submitted and to the contrary, §16 of D1-D3’s Submissions suggests Waxman is an alternative approach) that I erred in law in not adopting the “issue-based approach” which I rejected for the reasons given in the Reasons, §§132-135.

18.  In D1-D3’s Reply Submissions, on the one hand it seems to suggest that this court can be faulted for not having adopted the Waxman approach (§7) but on the other hand, it was submitted that it was “open to” this court to adopt the Waxman approach but it was “not mandatory” (§8). It seems to me that Ds must accept that both approaches were open to me in the exercise of my discretion.

19.  Given in Waxman it has been confirmed that post-CJR the court has a much wider discretion as to costs in interlocutory proceedings, and costs to follow the event is one of the obvious options, I simply cannot see how my refusal to adopt the issue-based approach was unreasonable or even arguably unreasonable. See Waxman, §19:

“Summing up on the post-CJR position, I think the court has much wider discretion as to costs in interlocutory proceedings. Unlike other proceedings, the general rule of costs following the event do not apply. The court is entitled to take into all the circumstances of the case, including those set out in r 5, to make such order as it thinks fit. In the exercise of its discretion, the court may take the issue-based approach or may take into account merit of the parties’ case or the possible outcome of the action. The circumstances of interlocutory proceedings are so numerous that it is possible to make any general rule. Costs to follow the event and costs be to the successful party’s costs in the cause are obvious options.”

20.  For the above reasons, I am not satisfied of the existence of an arguable appeal against the Costs Order, and that being “the minimum requirement” before a court would even consider granting a stay (see Star Play, §9(6)), D1-D3 Summons should be dismissed.

D10-D11 Summons

21.  Mr Wong and Mr Yeon have submitted that D10-D11’s intended appeal against FBP Order is meritorious.

22.  First, it is argued that the averment in paragraph 8 of the Defence only goes to P and D1’s intention, being the contracting parties to the Deed of Non-Competition (“the Deed”), and not D10-D11’s.

23.  Paragraph 8 of the Defence reads:

“As such, the 10^th and 11^th Defendants aver that it is the intention of the contracting parties thereof that it is permissible for the 10^th and/or 11^th Defendants to conduct their principal business with their customers that pre-existed the Plaintiff or new customers, or responding to inquiry from these customers or potential customers.”

24.  However, plainly the premise of D10-D11’s positive averment that it is permissible for D10 and/or D11 to conduct business with customers that pre-existed P or new customers or respond to inquiry from these customers or potential customer is the intention held by P and D1. As submitted by Mr Chiu, counsel for P, by pleading the intention of P and D1, it must have been their understanding also of what they were permitted to do under the Deed.

25.  Second, it is submitted that the averment vis-à-vis the Deed only concerns the scope of the clauses of the Deed which involves a question of contractual interpretation and does not concern what D10 and/or D11 have done subsequent to the entry of the Deed. However, as mentioned in the preceding paragraph, there is a positive averment that it was permissible for D10 and/or D11 to conduct business with pre-existing or new customers. I allowed the request because the particulars would enable P to know D10-D11’s case and to pin them down to who they say were permitted customers. See the Reasons, §§110-111. I do not agree with D10-D11’s Reply Submissions that they have not pleaded or relied on their business prior to P’s incorporation as material facts.

26.  In D10-D11’s Reply Submissions, it is further submitted that P has not pleaded in its ASOC or Reply that D10 and/or D11 had engaged in business similar to P’s or would be in potential competition prior to P’s incorporation. However, in paragraph 6 of P’s Reply, P expressly denied that D10 and D11 are permitted by the Deed to engage in Business in competition with or similar to the Business of P (other than those which were previously already their own and/or belonged to them). Paragraph 9 of P’s Reply also specifically denied that D10 and D11 were in fact carrying on business which would fall within the Restricted Business at the time of the Deed and/or they were not competitors of P but even if they were, such business was their own business and/or the business belonged to D10 and D11 for the reason they pre-existed P. Hence the issue of the business conducted by D10 and D11 prior to P’s incorporation, who were the pre-existing customers of D10 and D11 and whether such businesses conducted were permitted under the Deed are all materially disputed.

27.  Indeed it was submitted in D10-D11’s Submissions, §19(2), “it has already been pleaded at para. 8 of the Defence that the Deed allows D10 & D11 to conduct their principal businesses with their customers (both those which pre-existed P and those which only began to transact with them after P’s existence)”. Although it was also submitted that from paragraph 8 of the Defence, D10-D11’s case is sufficiently clear, I disagree (see the Reasons, §§110-111). In any event, it seems to me that it is unarguable where D10-D11 have submitted, “it is a material dispute between the parties as to the businesses conducted by D10 & D11” (see D10-D11’s Submissions, §17), that the business conducted by them were not material facts for which particulars ought to be given.

28.  Third, it is argued granting Request 4 in the form sought falls short of meeting the underlying objectives of RHC. It is submitted that the amount of information which has to be pleaded is “gargantuan”, would not assist in dealing with the disputes between the parties as expeditiously as is reasonably possible, was not a proportionate exercise of the court’s discretion and P could seek such information by way of specific discovery. However, as I have taken the view that it is a material dispute between the parties as to the business conducted by D10 and D11 (which counsel for Ds seem to accept) and whether it was within the permitted scope of parties’ agreement, and the particulars sought are necessary to inform P of Ds’ case with sufficient particulars to pin them down (see the Reasons, §§110-111), I disagree that the ordered particulars are not necessary and are contrary to the CJR objectives.

29.  An appeal against an order for particulars is an appeal against the exercise of my discretion. D10-D11 would have to demonstrate that it is arguable that I erred in law or in principle, I took into account some matter which I should not have or left out of account some matter I should have taken into account, such that I was plainly wrong: see Hong Kong Civil Procedure 2024, Vol 1, §18/12/72. I am simply not satisfied that D10-D11 have demonstrated I have arguably erred in the exercise of my discretion. On this basis alone, D10-D11 Summons ought to be dismissed.

Disposition and Costs

30.  I therefore dismiss both D1-D3 Summons and D10-D11 Summons.

31.  Costs should follow the event. I order that: (1) D1-D3 shall pay P’s costs of and occasioned by D1-D3 Summons; and (2) D10-D11 shall pay P’s costs of and occasioned by D10-D11 Summons; to be summarily assessed on paper.

32.  I direct that:

(1) P shall lodge and serve its Statement of Costs in respect of D1-D3 Summons and D10-D11 Summons respectively within 3 days hereof;

(2) D1-D3 and D10-D11 shall lodge and serve any objections to P’s Statements of Costs (limited to 2 pages) within 3 days thereafter; and

(3) P shall lodge and serve any response to Ds’ objections (limited to 2 pages) within 2 days thereafter.