CHARM MASTER ENTERPRISES LTD v. GRAND T G GOLD HOLDINGS LTD

HCA 397/2011

[2021] HKCFI 326

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 397 OF 2011

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BETWEEN

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D E C I S I O N

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Introduction

1.  There are 2 applications made by D1:

(1) A second application for extension of time (“Second Summons”) to meet the condition imposed for defending the claim made by D2 against it; and

(2) An application to amend (“Amendment Summons”) the Second Summons by adding an application for relief from sanction pursuant to Order 2, rule 5 of RHC.

2.  The applications are opposed by D2, who submits that D1 is abusing the process of the court in issuing a summons for the same relief as a prior one; and that the Amendment Summons is in fact a fresh summons under the disguise of amendment.  On the other hand, the Plaintiff has taken a neutral stance, subject to the prior agreement between the Plaintiff and D2 to have the judgment sum paid into Court pending the Court’s determination as to the question of entitlement between the Plaintiff and D2.

Procedural history

3.  The Plaintiff and D2 made a competing claim and counterclaim against D1 on 2 Promissory Notes.  Only D2 sought summary judgment against D1.  By a decision dated 12 November 2020 (“O14 Decision”) DHCJ Leung SC granted leave to the D1 to defend D2’s counterclaim on the condition that D1 do pay HK$12,000,000 into Court within 28 days (“Condition”), failing which D2 be “at liberty to enter judgment against D1 in the sum of HK$12,000,000 together with interest and costs of the counterclaim against D1”.  The deadline for payment fell on 10 December 2020.

4.  D1 has applied for leave to appeal against the O14 Decision, which will be heard on 26 February 2021.

5.  By a summons dated 7 December 2020 (“First Summons”), D1 applied for stay of execution or time extension of 28 days to comply with the Condition as D1 was finalizing the terms of funding to be provided by a financier.  The First Summons was originally fixed to be heard on 23 December 2020.

6.  D2 agreed not to enter judgment against D1 “pending the hearing of the [First Summons] on 23 December 2020”.  The Court later directed that the first Summons be disposed of on paper. 

7.  The First Summons was dismissed on 13 January 2021 (“Refusal of Stay Decision”).

8.  On the following day, D1 paid the sum of HK$12,000,000 into Court.  It crossed D2’s application to enter judgment against D1. 

9.  On 15 January 2021, D1 issued the Second Summons.  D2 refused to consent to extension of time for D1 to meet the Condition.

10.  On 26 January 2021, D1 wrote to the clerk to DHCJ Leung SC stating that D1 had made payment into Court, that D1 has issued the Second Summons and requesting that judgment should not be entered in favour of D2.  Although the Refusal of Stay Decision was mentioned in the letter, the fact of its dismissal was not.  In truth, judgment has not yet been entered as of the day of this hearing.

11.  On 29 January 2021, D1 issued the Amendment Summons, only one working day before this hearing.

12.  D2 refused to consent to D1’s applications on the ground, amongst others, that it was procedurally wrong, in that the First Summons had already been dismissed. 

13.  D1 submits that there was no abuse as there was material change of circumstances since the First Summons, ie the actual payment of HK$12,000,000 into Court. 

Second Summons

14.  In respect of the issue of repeated summonses, the principles have been set out in Lau Sin v Wong Mary [2018] 3 HKLRD 202, at §33, DHCJ Paul Lam SC:

(1) Res judicata, properly so-called, does not apply to interlocutory orders. 

(2) If a party seeks to re-litigate a matter which has been determined in a previous interlocutory decision by taking out a second application, the second application is liable to be dismissed by the court, either of its own motion or on application, pursuant to its inherent jurisdiction or O.18 r.19, on the ground that it constitutes an abuse of process.

(3) It will not be an abuse of process if there are express statutory provisions (inapplicable to this case) permitting re-litigation of the matter.

(4) In the absence of such express statutory provision, whether the second application constitutes an abuse of process must depend on the particular circumstances of each case.  Generally speaking, the court should consider what is just and reasonable.

(5) It is inappropriate and impossible to set out exhaustively what the relevant considerations will be.  Naturally, the court will need to consider the nature of the interlocutory application; whether the applicant had, or could and should have, challenged the first interlocutory decision by other means; and why a second application on the same matter has been made.  Examples of situation where the court may conclude that there is no abuse of process include: the ruling on the first application was not on merits but on a technical objection, the applicant failed to prove essential facts from mistake or inadvertence at the first application, there is new evidence that seriously justifies reconsideration of the issue; or there is a material change of circumstances.

(6) The court should adopt a holistic, rather than a dogmatic or mechanistic, approach.  At the end of the day, the court shall consider whether it is in the interests of justice to allow the second application to proceed having regard to all relevant circumstances of the particular case.  And in considering how its discretion should be exercised, O.1A, r.2 requires the court to give effect to the underlying objectives of the RHC as set out in O.1A, r.1.

15.  In my view, D1 has prima facie abused the process because the Second Summons seeks virtually the same relief as the First.  The Refusal of Stay Decision has criticized the way in which evidence was presented for seeking extension of time through the use of unaffirmed statements and its unsatisfactory contents (§§30-34); and, specifically, the failure of D1 to present evidence of cash or a bank draft available for consideration (§33(3)). A litigant who had omitted to adduce proper evidence cannot subsequently provide the evidence and say that there was material change of circumstances. 

16.  However, looking at the situation holistically, D1 was 35 days out of time in making payment in. In that period, D2 had agreed to stay execution of the O14 Decision pending the hearing on 23 December 2020.  When the hearing was converted into the paper disposal mode, it was not unreasonable for D1’s solicitors to think that D2 would not apply to enter judgment pending the paper disposal of the First Summons.  As soon as D1 knew the outcome of the First Summons and before judgment was entered, it lost no time in making payment into court.

17.  The Court has to weigh the prejudice that may be caused to each party if extension of time is granted or refused:

(1) Extension of time would deprive D2 of the opportunity to enter judgment.  Noting the Court’s comment that upon dismissal of the Second Summons, the HK$12,000,000 would be refunded to D1, counsel for D2 informed the Court that D2 would rather have the judgment than the funds in Court.  As the O14 Decision was not given on the basis of the Promissory Notes but acknowledgement of debt, this would enable D2 to cease taking part in the litigation. 

(2) However, in its O14 application, D2 had asked for the judgment sum and interest to be paid into Court (although this term was not included in the sealed order of DHCJ Leung SC).  That was in anticipation of the contest between the Plaintiff and D2 over the funds.  D2’s then stance was regardless of the basis on which it was to win the O14 application.

(3) D1 has paid an enormous amount into Court with a short delay of 5 weeks.  Refusing to extend time would deprive D1 of the opportunity to defend.  It would be a disproportionate punishment to D1 and the Court should be slow to deny D1 the chance to have its substantive rights adjudicated upon.

(4) The Plaintiff, who is supposed to “interplead” with D2 over the HK$12,000,000, would be deprived of security for its judgment.

18.  When considered holistically, having the money in Court provides the best safeguard of interests to all 3 parties.  I consider it just and reasonable to give extension of time to D1 to meet the Condition. 

Amendment summons

19.  Given that the Court is ready to extend time, it is strictly not necessary to consider the Amendment Summons.  I just deal with it briefly.

20.  Procedurally, the Amendment was defective.  Order 2, rule 4 requires an application to be taken out within 14 days from the due date of compliance (in this case, 10 December 2020).  However, the Amendment Summons was 35 days out of time and did not even give 2 clear days’ notice to other parties.  No explanation was given for the delay. 

21.  D1’s primary position is that the Condition is not a sanction and an application for relief from sanction is not the right course to take, but D1 takes it out of abundance of caution. 

22.  D1 relies on Schenker International (HK) Ltd v Natural Dairy (NZ) Holdings Ltd [2014] 1 HKLRD 274, a case concerned with an order that “unless the defendant … the plaintiff shall be at liberty to apply for judgment”.  DHCJ Le Pichon held that it was not a conventional unless order within automatic sanction.  Nothing would happen unless and until the party not in default took out a further court application and obtained a further order; therefore, no question of relief from sanction under a conventional unless order arose (at §§9, 20 and 42). 

23.  I disagree with D1’s contention.  The order in Schenker International was different in terms from the one in the present case.  In respect of the former, the court may approve or reject the plaintiff’s application for judgment.  In respect of the latter, entry of judgment will be an administrative matter.  Accordingly, the O14 Decision did contain a sanction from which D1 can seek relief.

24.  In DP Properties Ltd v E Cube Club (Tsuen Wan) Ltd [2020] HKCFI 1252, at §§16-19 & 22, Recorder Manzoni SC, was concerned with a situation where the defendant failed to meet the condition for leave to defend and judgment was entered.  Belatedly the defendant made the payment in (2 months out of time) and sought leave to appeal out of time against the Master’s decision.  The terms of the order were similar to Schenker International but that authority was not drawn to the learned Recorder’s attention. 

25.  In considering the grant of relief under Order 2, rule 5, Recorder Manzoni SC considered the question of proportionality and stated that the court should be slow to prevent a party from bringing its case before the court other than as a matter of last resort.  A failure to comply with conditions that has the effect of allowing a judgment to be entered would have that effect unless relief is granted.  See DP Properties, at §29.

26.  Among the matters set out in Order 2, rule 5, the most important was that D1 has had no other defaults save for the poor presentation of evidence under the First Summons (rule 5(1)(e)).  The analyses in paragraph 17 above equally apply.

27.  Although strictly not necessary, I grant abridgement of time, leave to amend the Second Summons and grant relief to D1 from sanction.  The time for payment in is extended to 14 January 2021.

Conclusion

28.  I make an order along the lines of paragraph 27 above.

29.  As between the Plaintiff and D1, they have agreed for costs to be reserved on the basis that the Plaintiff would not contest the summonses.  I make an order accordingly but paragraph 31 below should be drawn to the attention of the judge who is to decide the costs or taxing master’s attention, if needs be.

30.  Costs as between D1 and D2 under both summonses (with certificate for counsel) should be borne by D1 who is seeking indulgence of the Court.  Having heard the submission of Ms Yuen, counsel for D1, I am satisfied that the usual party and party basis for costs should apply.

31.  The Plaintiff and D2 have not submitted a statement of costs before the hearing.  For such deficiency in preparation, the costs of solicitors’ fees to be awarded to the Plaintiff and D2 should be cut down.

32.  I summarily assess and allow the costs of D2 at $32,000 and I make an order nisi accordingly.

The way forward

33.  This action was commenced about 10 years ago.  On the present state of evidence, it appears that the real contestants are the Plaintiff and D2.  D1 is liable to pay HK$12 million or thereabouts, subject to an indemnity from the real contestants.  The parties should actively consider whether D1 needs to be involved in this case at all. 

34.  The parties shall jointly report to me (in not more than 3 pages of font size 14) on progress and the way forward within 2 months.  The report should enclose one joint set of proposed directions (with disputed directions properly identified) and a proposed date for CMC.  I shall consider the further directions to make upon reading the joint report. 

35.  I thank Mr Sousa, Ms Yuen and Mr Ho for their assistance.