NEW ART HOLDINGS CO., LTD. AND OTHERS v. EST-OUEST AUCTIONS CO., LTD AND OTHERS

HCA 325/2024

[2025] HKCFI 4979

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 325 OF 2024

__________________

__________________

_______________

D E C I S I O N

_______________

I.  INTRODUCTION

1.  Before me is the Summons filed by the 1^st and 2^nd Plaintiffs on 16 September 2025 for relief from sanction (the “RFS Summons”) from §13 of my Order made on 7 May 2025 (the “May Order”) ordering the 1^st and 2^nd Plaintiffs to make payment of security of costs in form of cash (or cheques) into Court within 28 days from the date of the Order, that is, 4 June 2025:-

“In default of such security being given by the 1^st and 2^nd Plaintiffs, this action and the 1^st and 2^nd Plaintiffs’ claim as against the Defendants be dismissed without further Order…”

See also §§35-45 of my Decision handed down on 7 May 2025 ([2025] HKCFI 1774) (the “May Decision”).

II.  BACKGROUND

2.  No payment was made on or before 4 June 2025. On 12 June 2025, the 1^st and 2^nd Plaintiffs filed a Summons (the “Variation Summons”) for an order that the form of security be provided by provision of bank guarantees instead of cash or cheques. On 4 July 2025, the Plaintiffs filed another Summons (the “Stay Summons”) for an order to stay costs orders against the Plaintiffs pending the taxation of costs to be paid the 1^st and 2^nd Defendants in a related action HCIP 45 of 2023 (the “HCIP Action”). Both the Variation Summons and the Stay Summons were returned before me on 22 July 2025. At the hearing on 22 July 2025 (the “July Hearing”), in response to the prima facie status that the Plaintiffs’ claim had been dismissed as a result of the sanction for the failure to comply with the May Order, the Plaintiffs’ then counsel raised that the Plaintiffs intended to make an application for relief from sanction. As a result, the Stay Summons and the Variation Summons were adjourned to be heard with the intended application.

3.  What came, however, was not the intended application for relief from sanction. On 28 July 2025, the Plaintiffs’ then solicitors (the “Plaintiffs’ Former Solicitors”) issued a letter to the Court (with other parties copied onto it) (the “Plaintiffs’ Former Solicitors’ Letter”) stating unequivocally that:-

“We are instructed to inform the Court that the Plaintiffs no longer intend to apply for relief against sanction nor pursue their summons dated 12 June 2025 (i.e. for variation of the manner of the payment of security for costs). The adjourned hearing to be fixed will therefore solely be in relation to the Plaintiffs summons dated 4 July 2025.”

4.  The next day, that is, 29 July 2025, the parties attended the Listing Office to fix the date for hearing the Stay Summons. The hearing of 22 September 2025 was thus fixed before me.

5.  On 12 September 2025, the Plaintiffs’ current solicitors (the “Plaintiffs’ Current Solicitors”) filed a Notice of Change of Solicitors. Then, by letter dated 15 September 2025 issued to the Court, the Plaintiffs’ Current Solicitors wrote:-

“3. We have instructions to state on behalf of the Plaintiffs that while they confirm their position not to pursue the reliefs sought in §9 and §10 of the Variation Summons, the [Plaintiffs’ Former Solicitors’’ Letter] is incorrect on the first part about the Plaintiffs having also given instructions not to apply for relief against sanction from the [May Order]. The Plaintiffs did not give such an instructions to [the Plaintiffs’ Former Solicitors].

4. Our clients, more particularly the 1^st and 2^nd Plaintiffs, are aware that by the time of this letter, the time for compliance with the Orders for payment of security for costs under the [May Order] would have been expired, and accordingly the Action would stand dismissed. In that regard, notwithstanding the unfortunate issuance of the Letter or absence of adequate step(s) expected to be taken by [the Plaintiffs’ Former Solicitors], we have instructions to take out an application to seek appropriate reliefs against the sanction imposed by [the May Order].”

6.  On 16 September 2025, the 1^st and 2^nd Plaintiffs filed the RFS Summons.

7.  At the hearing on 22 September 2025, all the Defendants confirmed to me that they could proceed substantively with the RFS Summons without further evidence.

III.  THE PLAINTIFFS’ WITHDRAWAL OF THE VARIATION SUMMONS AND THE STAY SUMMONS

8.  By the time of the hearing before me on 22 September 2025, the Plaintiffs have already had the cheques for payment of security for costs available, and also settled the costs orders under the Stay Summons. Therefore, by the time of the hearing, the Variation Summons and the Stay Summons had been rendered academic, and the Plaintiffs apply for withdrawing these Summonses.

9.  I here grant leave for the Plaintiffs’ withdrawal of the Summonses. I also order the Plaintiffs to pay costs of the Summonses on an indemnity basis given that (1) the Plaintiffs withdrew the Summonses; (2) the Plaintiffs had not obtained anything they applied for under the withdrawn Summonses; and (3) the Plaintiffs had not provided any or any good reasons for changing their position on the Summonses.

IV.  THE RFS SUMMONS

10.  Order 2 rule 5(1) non-exhaustively lists out the factors for consideration in an application for relief from sanction. The burden lies upon the applicant to satisfy the Court that having considered all the relevant factors in this multi-faceted balancing exercise, it should exercise its discretion to grant relief: Re Labrador Nolito Blazado [2018] HKCA 720 at §11 per Barma and Poon JJA. I shall go through the factors one by one first.

V.  INTERESTS OF THE ADMINISTRATINON OF JUSTICE

11.  Under Order 2 rule 5(1)(a) “the interests of the administration of justice”, the merits of the 1^st and 2^nd Plaintiffs’ claim are material.

12.  In relation to the 2^nd Plaintiff, in the judgment handed down on 30 September 2024 upon trial in the HCIP Action (the “HCIP Judgment”) ([2024] HKCFI 2619), Lok J found that the 2^nd Plaintiff has at the material times been the owner of the relevant goodwill: see §58 of the HCIP Judgment, but not others. No defence has been filed yet. But in reading the Affirmations in opposition to the Plaintiff’s Order 14 application which I disposed of in the Decision, namely, the 2^nd Affirmation of So Hin Yee filed on behalf of the 1^st and 2^nd Defendants, the 2^nd Affirmation of the 3^rd Defendant and the 2^nd Affirmation of the 4^th Defendant, they seem to admit that the 1^st Defendant did use the relevant marks in which the goodwill resided, but seem to defend on the ground that the 1^st Defendant’s use was not misuse and/or did not constitute any “meaningful” use and so there was no passing off.

13.  As regards the 2^nd, 3^rd and 4^th Defendants specifically, they rely on my observation in §31 of the Decision that there was no plea of common design or joint tortfeasors against them, and the Plaintiffs’ then counsel’s submissions that the passing-off claim against them was that they themselves passed off the 2^nd Plaintiff’s business. I must, however, stress that my observation made there was made in the context of the Plaintiffs’ Order 14 application, which would require that the Statement of Claim to be complete before the summary judgment could be granted. As to whether the Plaintiffs’ claim against the 2^nd, 3^rd and 4^th Defendants would be struck off as unmeritorious, it would seem to me that on the materials before me, the Statement of Claim is not so irremediable whether for lack of plea of the requisite elements for proper causes of action and/or for lack of particulars. The fact remains that the 2^nd, 3^rd and 4^th Defendants were directors of the 1^st Defendant against which the 2^nd Plaintiff’s passing-off claim is pleaded, and it is not unusual that directors of the passing-off company would be sued individually as joint tortfeasors and/or on common design.

14.  Insofar as there is any suggestion that given that none of the Defendants has filed any defence, it would be inappropriate for me to form any view, even provisional or preliminary view, on the merits of the 2^nd Plaintiff’s claim, I would say that it is reasonable for me to rely upon the Affirmations mentioned in §12 above filed in opposition to the Plaintiffs’ Order 14 application.

15.  Having considered the above, on the materials placed before me at this stage, I would say that the 2^nd Plaintiff’s claim is meritorious. However, merits is not the only consideration in the balancing exercise. I should consider the other factors listed out under Order 2 rule 5(1).

16.  The 1^st Plaintiff’s claim, however, is not the same. The 1^st Plaintiff has not owned the relevant goodwill, and therefore, cannot mount any claim based on passing-off: see §30 of the May Decision. It is not just a matter of defective pleading like the claim against the 2^nd, 3^rd and 4^th Defendants, but goes to the standing of the 1^st Plaintiff. Mr Jason Wong, leading Mr Esmond Wong, counsel for the 1^st and 2^nd Plaintiffs, submits that there would be other claim available to the 1^st Plaintiff, and he raised as an example unlawful interference with business, and further submits that the 1^st Plaintiff has been so intertwined with the 2^nd Plaintiff that any pass-off of the 2^nd Plaintiff’s business would damage the 1^st Plaintiff. In his written supplemental submissions, he also submits that the 1^st Plaintiff was a licencee or franchisee of the 2^nd Plaintiff’s goodwill, and so was entitled to claim on passing-off with the 2^nd Plaintiff. However, as submitted in the 3^rd Defendant’s written supplemental submissions, in the absence of any agreement to the contrary, the general rule is that it would still be the owner of the goodwill to claim on passing-off: see Quantum Advisory Limited v Quantum Actuarial LLP [2024] EWCA Civ 247 at §47. In the present case, there is no draft Re-Amended Statement of Claim despite my comments about the 1^st Plaintiff’s standing to sue on passing-off in the May Decision. There is not even any evidence to support these causes of action now raised by way of counsel submissions, while the 1^st Plaintiff could certainly do so in the Affirmations filed in support of the RFS Summons. The burden lies upon the 1^st Plaintiff to satisfy me why the RFS Summons should be granted, and the burden lies upon the 1^st Plaintiff to adduce all the relevant evidence. On the materials put before me, I am not satisfied that that the 1^st Plaintiff has a meritorious claim against the Defendants at all. Here, it is not like the claim against the 2^nd, 3^rd and 4^th Defendants which is, as mentioned above, not irremediable on the materials before me.

17.  Since the 1^st Plaintiff’s claim is not meritorious, there is no point in granting relief from sanction in relation to the 1^st Plaintiff’s claim. In the circumstances, this alone is sufficient for me to, and so I do, refuse to grant relief from sanction in relation to the 1^st Plaintiff’s claim.

VI.  WHETHER THE APPLICATION FOR RELIEF HAS BEEN MADE PROMPTLY

18.  In relation to Order 2 rule 5(1)(b) “whether the application for relief has been made promptly”, the deadline for complying with the unless order in question was, as mentioned above, 4 June 2025. The RFS Summons was filed as late as on 16 September 2025, more than 3 months after the deadline. The 1^st and 2^nd Plaintiffs’ explanation for the delay is that the Plaintiffs’ Former Solicitors overlooked the need to separately make such an application, apparently relying on the Variation Summons only which they thought were sufficient.

19.  I accept the 1^st and 2^nd Plaintiffs’ explanation. The filing of the Variation Summons and the Stay Summons, in my view, is itself evidence that it was thought that there was no need for a separate application. If it were thought that there was a need for a separate application, it would be unlikely that the Variation Summons and the Stay Summons would still be filed without making a separate application for relief against sanction.

20.  I also accept that it was the thought of the Plaintiffs’ Former Solicitors, rather than of the Plaintiffs themselves, that there was no need for a separate application. I accept this for the simple reason that the Plaintiffs were not legally trained and had to rely on the Plaintiffs’ Former Solicitors.

VII.  WHETHER THE FAILURE TO COMPLY WAS INTENTIONAL AND WHETHER THERE IS A GOOD EXPLANATION FOR THE FAILURE TO COMPLY

21.  Order 2 rule 5(1)(c) and (d) require the Court to consider “whether the failure to comply was intentional and whether there is a good explanation for the failure to comply”. The 1^st and 2^nd Plaintiffs’ explanation for the failure to pay the security for costs before the deadline is that it was running short of fund, it would need the internal approval, and it was seeking finance from the bank, and so instructed the Plaintiffs’ Former Solicitors to make a necessary application. The so-called “necessary” application turned out to be the Variation Summons only. Such explanation, nevertheless, does not give any details about the time. Such explanation stops short of accusing the Plaintiffs’ Former Solicitors of any mis-advice like “there is no need to observe the deadline strictly” (and in any event, it would be inherently improbable that the solicitors would give such advice). In my view, the Plaintiffs’ explanation is inadequate to explain why the Variation Summons was taken out so late after the deadline of 4 June 2025, even assuming that the 1^st and 2^nd Plaintiffs and the Plaintiffs’ Former Solicitors thought that the Variation Summons would be sufficient.

22.  However, inadequacy of explanation does not necessarily, though it usually would, mean that the failure to comply was intentional. One must understand the 2^nd Plaintiff’s claim in context – the 2^nd Plaintiff was actively engaged in the HCIP Action, a related action, and the HCIP Judgment was handed down in the 2^nd Plaintiff’s favour. On the whole, it appears to me that the Plaintiffs’ failure is not intentional, although they did not pay sufficient regard to a Court Order, or were indolent.

23.  Overall, the failure is not intentional, but there is no good explanation for the failure.

VIII.  THE EXTENT TO WHICH THE PLAINTIFFS HAVE COMPLIED WITH OTHER RULES AND COURT ORDERS

24.  The 1^st and 2^nd Defendants highlighted the 1^st to 4^th Plaintiffs’ repeated failure to serve hearing bundles and submissions on time in compliance with the Practice Directions as the Plaintiffs’ failure to comply with other rules and Court Orders under Order 2 rule 5(1)(e).

25.  The 1^st to 4^th Plaintiffs also failed to settle the costs orders promptly on 7 July 2025, but to be fair to the Plaintiffs, on 4 July 2025, they filed and served the Stay Summons. Although the filing of the Stay Summons itself did not operate as a stay, the Stay Summons is the explanation for the delay.

26.  Another failure is of course the 1^st and 2^nd Plaintiffs’ failure to file the RFS Summons on time, now with a delay of more than three months.

27.  Whether such failures are serious has to be assessed against the explanation, a consideration now I turn to.

IX.  WHETHER THE FAILURE TO COMPLY WAS CAUSED BY THE PARTY IN DEFAULT OR HIS LEGAL REPRESENTATIVE

28.  Order 2 rule 5(1)(f) distinguishes between cause of failure by the party in default and cause by the party’s legal representative. As analysed above, the failure to comply with the May Order was attributable to the 1^st and 2^nd Plaintiffs themselves though not intentional, while the failure to file the present RFS Summons on time was caused by the Plaintiffs’ Former Solicitors.

29.  The above considered, I tend to think that the failures are not serious.

X.  WHETHER THE TRIAL DATE OR THE LIKELY TRIAL DATE CAN STILL BE MET IF RELIEF IS GRANTED

30.  The effect on the trial date to be considered under Order 2 rule 5(1)(h) is basically irrelevant here. The proceedings are at a very early stage: the Defendants have not even filed their defence yet. I cannot see any effect on the trial dates or likely trial dates at all.

XI.  THE EFFECT OF THE FAILURE AND GRANT OF RELIEF ON THE PARTIES

31.  The considerations under Order 2 rule 5(1)(i) and (j) are in essence what, if any, prejudice would be caused to the parties.

32.  The effect of dismissal upon the failure on the 2^nd Plaintiff would be to deprive it of the claim which is, on the materials before me, meritorious, while the effect of dismissal upon the failure on the 1^st Plaintiff would be nil, given that its claim is in itself unmeritorious. In respect of the 2^nd Plaintiff’s claim, in theory, the 2^nd Plaintiff could pursue against the Plaintiffs’ Former Solicitors for their mishandling of the May Order. However, practically, such claim against the Plaintiffs’ Former Solicitors would not be easy to pursue. Notably, the relief the 2^nd Plaintiff now makes against the Defendants include injunction, delivery up, assessment of and/or inquiry as to damages. Although the Defendants (in particular, the 1^st Defendant) allege that the use of the relevant marks has stopped, I only have their one-sided evidence. In my view, in the circumstances, the effect of dismissal of the 2^nd Plaintiff’s claim would be disproportional to the merits of the 2^nd Plaintiff’s claim.

33.  The effect of the failure on the Defendants would be that they would gain a windfall in respect of the 2^nd Plaintiff’s meritorious claim, while they would be relieved from incurring costs and time to defend against the 1^st Plaintiff’s unmeritorious claim.

34.  The effect of grant of relief would be that the 2^nd Plaintiff would be able to pursue its meritorious claim, while the 1^st Plaintiff would have to continue its unmeritorious claim, and correspondingly, the Defendants would have to incur time and costs to defend the 1^st Plaintiffs’ unmeritorious claim. However, given the merits of the 2^nd Plaintiff’s claim, I see nothing unjust that the Defendants should do so in respect of the 2^nd Plaintiff’s claim, assuming that they would be compensated by costs.

35.  It is also noteworthy that the Defendants have not filed any defence.

36.  I also note that the 1^st and 2^nd Plaintiffs are ready to pay security for costs, and have settled the costs order under the Stay Summons. Mr Jason Wong, for the Plaintiffs, also sensibly do not make any submissions on the Defendants’ urging this Court to make costs order against the Plaintiffs even on an indemnity basis.

37.  Overall, in terms of effect, in my view, the refuse to grant relief in respect of the 2^nd Plaintiff’s claim would be disproportional.

XII.  ANY OTHER FACTORS

38.  I cannot see any factors in the present case that I have not considered.

XIII.  CONCLUSION

39.  Having considered all the above factors, I find it appropriate to grant relief from sanction in respect of the 2^nd Plaintiff’s claim, but not the 1^st Plaintiff’s claim, with costs to the Defendants on an indemnity basis. Therefore, I make the following order:-

(1)  The 2^nd Plaintiff be relieved from sanction arising from §13 of the May Order and the 2^nd Plaintiff’s claim herein be reinstated (For the avoidance of doubt, the amounts shall remain the same even though now only the 2^nd Plaintiff has to pay the security for costs); and

(2)  Time be extended for the 2^nd Plaintiff to make payment of security for costs in the amounts as directed under the May Order out of time until the expiry of 7 days from today.

40.  As regards costs, the strongest consideration in favour of the 2^nd Plaintiff is the merits of the claim. However, in general, as can be seen above, the explanation for the failures is far from satisfactory, save and except for the explanation for the failure to make the present application promptly. In particular, I found that the 1^st and 2^nd Plaintiffs did not pay sufficient regard to a Court Order and were indolent. In the circumstances, I find it appropriate to order the 1^st and 2^nd Plaintiffs to pay costs (including the costs of the Variation Summons and the Stay Summons) to the Defendants on an indemnity basis. My summary assessments are as follows:-

(1)  The 1^st and 2^nd Defendants’ costs are summarily assessed at HK$130,000;

(2)  The 3^rd Defendant’s costs are summarily assessed at HK$120,000; and

(3)  The 4^th Defendant’s costs are summarily assessed at HK$130,000.

41.  It remains for me to thank counsel for their assistance.