LEI TAO v. YENHON (HK) DISPLAY CO LTD AND ANOTHER

HCA 1197/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1197 of 2012

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JUDGMENT

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Introduction

1.  This is an appeal (out of time) by the plaintiff against the order of the Master who ordered that the plaintiff’s claim be provisionally struck out pursuant to Order 25, rule 1C(1) of the Rules of the High Court when the plaintiff failed to appear at a Case Management Conference (“CMC”) on 13 February 2015.

2.  In the normal course of events, the plaintiff should have applied to restore his claim pursuant to Order 25, rule 1C(3) instead of lodging an appeal from the Master’s decision.  However, since a period of more than three months had elapsed from the time of the order, the claim has been dismissed pursuant to Order 25, rule 1C(6), and it is arguable that the Master no longer has jurisdiction to restore the plaintiff’s claim.

Background

3.  The proceedings started off in July 2012 with an ex parte application by the plaintiff for a Mareva injunction and Anton Piller order which was granted by Fung J on 11 July 2012. This was subsequently discharged by consent order on 28 September 2012.

4.  The plaintiff’s claims are primarily against the 2^nd defendant.  It is alleged that the plaintiff and the 2^nd defendant in 2007 incorporated a company in Shenzhen which became the sole agent in respect of Greater China for the supply of Organic Light Emitting Diode (“OLED”) products from a certain manufacturer in the USA.  The 1^st defendant was subsequently set up in Hong Kong in 2008 with the plaintiff and the 2^nd defendant each holding half of the shares of the 1^st defendant to carry on that trading business in view of the strict foreign exchange controls in the Mainland.  The 2^nd defendant was the person responsible for the operation of the 1^st defendant.

5.  Subsequently, the 2^nd defendant refused to provide financial and business information regarding the 1^st defendant, represented to the plaintiff and others that the plaintiff was no longer shareholder of the 1^st defendant, denied access to storage facilities of the 1^st defendant (and the goods therein), and had made material misstatements in the 1^st defendant’s financial reports between the years 2008 to 2010.

6.  The plaintiff thus claimed for orders that the 2^nd defendant provide management accounts of the 1^st defendant, access to all financial records of the 1^st defendant, appointment of an independent auditor of the 1^st defendant, and an order restraining the 2^nd defendant from dealing with the assets of the 1^st defendant.

7.  The 2^nd defendant denies such allegations.  The 2^nd defendant says that the contract for supply of OLED products was sourced and procured by him, and conducted through a company incorporated in Shenzhen, Shenzhen Yenhong Display Technology Company Limited (“Yenhong SZ”).  Yenhong SZ did not simply trade the OLED products but supplied customized products for its customers in the Mainland which involved designing peripheral driving circuitry for the OLED products.  The 2^nd defendant is and was the only beneficial shareholder of Yenhong SZ.

8.  The plaintiff’s role in the business of OLED products was the introduction of a customer in the Mainland, 武漢高德光電有限公司 (“Wuhan Gao De”) in respect of which it was agreed that the plaintiff would be entitled to half of the profits earned through orders placed by Wuhan Gao De.

9.  The 1^st defendant was incorporated in Hong Kong in May 2008 to facilitate foreign exchange transactions for the 2^nd defendant.  In other words, it had no independent profit making role.  All trading was done between the USA supplier and Yenhong SZ, with the 1^st defendant’s role being essentially a remittance agent for the 2^nd defendant, receiving foreign exchange in Hong Kong from Yenhong SZ’s buyers and remitting foreign exchange to the supplier to avoid cumbersome foreign exchange controls.  The plaintiff was made a shareholder because the plaintiff misrepresented to the 2^nd defendant that under Hong Kong law or regulations, a company required at least two shareholders and directors.

10.  The 2^nd defendant further says that the plaintiff had attempted to make a secret profit by inflating the price for an order of goods to be supplied to Wuhan Gao De. Upon the 2^nd defendant making this discovery, the plaintiff and 2^nd defendant parted ways, although there was some further dispute arising from further misrepresentations in regard to the OLED business.

How the plaintiff’s claim came to be dismissed

11.  The proceedings were carried on with reasonable dispatch with the parties having filed and exchanged witness statements by May 2013.

12.  However, things ground to a halt after the Case Management Conference on 11 July 2013 which was adjourned to 31 October 2013.

13.  On 4 October 2013, the plaintiff’s then solicitors issued a summons to withdraw from representing the plaintiff which resulted in an order pursuant to Order 67, rule 6(1) declaring that the plaintiff’s solicitors ceased to be solicitors of the plaintiff upon fulfillment of the conditions in Order 67, rule 6(1) made on 2 December 2013 (“Permission to Withdraw Order”).

14.  Unfortunately, there were problems serving the Permission to Withdraw Order on the plaintiff.  In the end, the plaintiff’s then solicitors obtained an order from the court dated 13 February 2015 that the Permission to Withdraw Order was deemed to have been served on the plaintiff on or before 11 February 2015.  Therefore, the plaintiff’s then solicitors were technically on the record until 11 February 2015, although the plaintiff’s then solicitors had ceased to act for the plaintiff since October 2013.

15.  In the meantime, the Case Management Conference which had been adjourned to 31 October 2013 was further adjourned on that date and the following occasions:

(1)   13 February 2014;

(2)   22 May 2014;

(3)   25 July 2014;

(4)   17 October 2014; and

(5)   19 December 2014.

The adjournments were due no doubt to the absence of the plaintiff and the inability of the plaintiff’s then solicitors to serve the Permission to Withdraw Order on the plaintiff, meaning that they were on record as solicitors for the plaintiff but unable to effectively act on his behalf.

16.  Although the plaintiff’s then solicitors were unable to serve the Permission to Withdraw Order on the plaintiff, they were in telephone and email contact with the plaintiff, as shown by the various affirmations filed on their behalf.  There can be no doubt that the plaintiff was aware of the Permission to Withdraw Order and the various adjournments of the Case Management Conference.

Relevant legal principles

17.  I accept and adopt the test which was set out by Registrar Au-Yeung (as she then was) in World Chinese Business Investment Foundation Ltd v Shine Rainbow Marketing Ltd [2010] 2 HKC 294, 297:

“... the Court will not lightly accede to the request of a defaulting party to restore an action without sufficient explanation and consideration of the merits.”

The application should be dealt with in three stages:

(1)   first, there was a threshold of showing “good reasons”;

(2)   then the court would consider whether, as a matter of discretion, it should grant the restoration; and

(3)   if it decided to restore the claim, the court may consider conditions to be imposed.

18.  I also find the following passage from the judgment of Fok J (as he then was) in Top One International (China) Property Group Co Ltd v Top One Property Group Ltd [2011] 1 HKLRD 606 at 618 [41] helpful:

“... in my view, CJR has had the effect that the Hytec approach now reflects the approach that should be applied in this jurisdiction. That is to say, although intentional and contumelious disregard of a court's peremptory order may be the most usual circumstance leading to the refusal of an extension of time to comply with a peremptory order, the exercise of the discretion to refuse an extension or to relieve a party from sanctions is not limited to cases of intentional and contumelious default. As directed by O.2 r.5 of the Rules of the High Court, the court should consider all the individual circumstances including those listed in r.5(1) at subparas.(a)–(j). Depending on the circumstances, failure to comply with one or a number of orders through negligence, incompetence or sheer indolence may be such as to lead the court to conclude there is an existence and degree of fault which warrants a refusal of an extension of time, so that relief from a sanction for non-compliance specified in a peremptory order (including an order striking out a pleading) should not be granted. Any other conclusion would, in my opinion, be to ignore the positive duty placed on parties to assist the court to further the underlying objectives of CJR (O.1A r.3 of the Rules of the High Court) and on the court to do so by actively managing cases (O.1A r.4(1) of the Rules of the High Court).”

In my view, Order 2, rule 5 is equally applicable to the present application since the plaintiff is seeking relief from having his claim dismissed on account of failure to appear at the CMC.

19.  Also applicable are the words of DHCJ Wong SC in Postwell Ltd v Cheng Kap Sang [2004] 2 HKLRD 355 at 363 [33], [35]:

“ 33. In considering whether to extend time to appeal, the court has to consider the following factors:

(1) the length of the delay;

(2) the reasons for the delay, in terms of firstly why the original time limit was not complied with and, secondly, why the application for extension of time could not have been made earlier;

(3) the chances of the appeal succeeding if leave is given; and

(4) the prejudice to the other party if application is granted.

...

35.   ... Although I agree with Hartmann J that the absence of an acceptable explanation for the delay does not preclude the court's discretion to extend time, I am of the view that in applications for extension of time to appeal an adverse order or adjudication, as opposed to extension of time to remedy other procedural default, the court should be slow to accede to the application in the absence of an acceptable reason for the delay.”

Have good reasons been shown to explain the plaintiff’s absence?

20.  The plaintiff says in his 5^th Affirmation affirmed in Canada on 28 June 2016 that:

(1)   All along he was legally represented by his then solicitors until early 2014.  He had already emigrated to Canada and was not able to come to Hong Kong to handle the case.

(2)   He was contacted by a Mr Chan of his former solicitors and was told about the scheduled CMC on 13 February 2015.  He could not attend because he was in Canada.

(3)   He faxed a letter to the court asking for an extension of time of the CMC, but received a letter from the Clerk to Master Ho on 12 February 2015 refusing his request, saying that if he did not turn up, his case would be temporarily struck out:

「若原告人不親自出席2015年2月13日的聆訊，或沒有聘請律師代表出席，法院會把原告人的申索及整件案件暫時剔除」

He took the words to mean that he could restore his case at any time upon his return to Hong Kong, that no one had ever warned him of any restriction or condition imposed.

(4)   He had tried to instruct his former solicitors to represent him at the CMC after receipt of the letter from the clerk to Master Ho, but his former solicitors refused.

(5)   As he was not in Hong Kong, he could not instruct another solicitor to act on his behalf.

(6)   He could not return to Hong Kong as he had lost his Permanent Resident Card in January 2015.  He did not dare leave Canada as he was afraid that he might be denied re-entry without his Permanent Resident Card.

(7)   He obtained a new Permanent Resident Card in late June 2015.

(8)   He returned to Hong Kong in July 2015 when he “proactively” wrote to the High Court to enquire about of his case and was told to attend court on 18 September 2015.  He then instructed his present solicitors.

(9)   Prior to the hearing of 18 September 2015, he had not been given the order of Master Ho dated 13 February 2015.  He says that the order could have been posted to his last known address in China, but as his whole family had migrated to Canada, his house was unoccupied and mail tended to get lost.

21.  In his 6^th Affirmation affirmed in Canada on the same day, he says that he is in the midst of applying for a Permanent Resident Card and is currently unable to leave Canada, as any travel outside of Canada would result in failure to fulfill the application requirements, namely to be physically present in Canada, exhibiting a screen shot of what appears to be the result of an enquiry into his Permanent Resident Card application status, and another screen shot apparently from a Canadian government website stating that a requirement for eligibility of a Permanent Resident Card is that the applicant is personally in Canada.

22.  It will be immediately apparent that there is an inconsistency between the plaintiff’s 5^th and 6^th Affirmations, which were affirmed on the same day, before the same Notary and Commissioner of Oaths.  In his 5^th Affirmation, the plaintiff says that he lost his Permanent Resident Card in January 2015, which was re-issued in June 2015.  In his 6^th Affirmation, he says that he is in the midst of applying for a Permanent Resident Card.

23.  No explanation has been proffered for such an inconsistency, and the court simply cannot attach any weight to such internally inconsistent evidence.  In any event, the burden on the plaintiff is to satisfy the court that there were good reasons for his absence at the CMC by providing sufficient evidence to support his alleged inability to return to Hong Kong to attend the CMC.  That would involve at least copies of any loss report made, copies of application for re-issue of his Permanent Resident Card (or copy of application for issue of the card — whichever is the case) and a full explanation of the status of his application instead of simply incomplete screen captures of web pages without any context.  The plaintiff certainly had more than sufficient time to gather such evidence, the Notice of Appeal having been filed on 26 January 2016, and the 5^th and 6^th Affirmations in support having been filed nearly half a year later.

24.  Further, the plaintiff in his purported explanation only dealt with the CMC on 13 February 2015.  No mention at all was made of the numerous occasions when the CMC had to be adjourned.  Mr Cheung says that the plaintiff’s then solicitors were on the record and the plaintiff was not unrepresented on the previous adjourned CMCs.  However, this ignores the fact that the plaintiff’s former solicitors had already ceased to act for the plaintiff and were only technically still on the record because they could not serve the relevant order on the plaintiff who: (a) did not give the former solicitors his address in Canada despite having emigrated since 2010 (according to the Statement of Claim), and (b) did not attend the solicitors’ offices to pick up various documents including the Permission to Withdraw Order despite having previously agreed to do so.

25.  The previous occasions when the CMC had to be adjourned were unexplained.  It is incumbent on a party who seeks to persuade the court to grant relief and have his claim restored to establish good reasons why the court should grant such relief.  The burden is on the party to explain the delay, especially in circumstances like the present where the application of the sanction of a provisional striking out was only the cumulation of a series of adjournments which were caused by that party.

26.  Still further, the plaintiff has never explained why he could not instruct solicitors in Hong Kong whilst he was still in Canada.  In the present day and age, with instant communication through telephone and the internet, there is no reason why instructions cannot be communicated through electronic means, including video-conferencing, if necessary.

27.  The plaintiff’s twisted interpretation of the words in the faxed letter of 12 February 2015 from Master Ho’s is also disingenuous — even if the plaintiff was under the impression that the claim was only “temporarily” struck out, he has again conveniently ignored the last sentence of that letter which stated “原告人應盡快就明天的聆訊諮詢律師意見”, iethat the plaintiff should seek legal advice regarding the next day’s hearing as soon as possible.  Far from being “proactive” the plaintiff did nothing except write to the court in July 2015 to enquire about his case, something that he could well have done from Canada months beforehand.

28.  The claim that the plaintiff believed he could restore the claim anytime that he returned to Hong Kong is simply unsustainable.  It beggars belief that any person with reasonable common sense would entertain such a view.  It also again conveniently ignores the fact that his former solicitors in an affirmation filed on 11 February 2015 that as early as July 2014, they had informed him that if he did not attend the then upcoming CMC on 17 October 2014, his claim would be dismissed (without any qualification such as the use of the words “temporary” or “provisionally”).  The same affirmation also demonstrated that the plaintiff could be contacted by his former solicitors through email.

29.  I find that the plaintiff has failed to make out good reasons for his absence and why the court should restore his claim. In coming to this conclusion, I have had to look through the court’s file to discover what should have been disclosed and dealt with in the plaintiff’s own evidence in support of this application.  The 2^nd defendant’s solicitors had come off the record since July 2015.  The court was not informed of the full procedural history in a case where the other party was unrepresented and had to on its own go through the court files to find out what happened.

30.  In a further example of the cavalier attitude which permeated this application from the plaintiff, the plaintiff’s solicitors on 5 August 2016 (four days before the hearing) purported by letter to “file” three documents for use at the hearing.  Not only was this not done properly by way of affirmation to be placed before the court, the correspondence was not even copied to the 2^nd defendant.  The explanation proffered at the hearing was that the plaintiff’s solicitors did not believe that the 2^nd defendant would receive the documents before the hearing.  However, no effort was even made to try to serve the documents, whether by post or by courier.  In this regard, the 2^nd defendant in his affirmation in opposition to the present application queried why the plaintiff’s 5^th and 6^th Affirmations were served by ordinary post reaching the 2^nd defendant more than 10 days later leaving the 2^nd defendant with very little time to respond, whereas the plaintiff’s solicitors had previously sent other documents to him by courier which arrived within two days.  It is hoped that those advising the plaintiff will in future bear in mind their duties to the court and unrepresented litigants lest the court be compelled to impose sanctions against them personally.

Any other reason to exercise discretion in plaintiff’s favour?

31.  In light of the above circumstances, the plaintiff’s absence at the CMC can be described as intentional and contumelious, and no extension of time should be granted to the plaintiff.

32.  However, the court is required to consider whether there exists good reasons to restore the claim and in the course of that consideration, all relevant matters need to be considered.  In the present case, there is in existence one factor which operates in the plaintiff’s favour, namely the existence of the winding up petition of the 1^st defendant in HCCW 322/2012.  That Petition mirrors the present action, and the issues to be decided in the Petition are largely the same.

33.  That is likely the reason why the Petition was stayed until after final disposal of the present action by order of Harris J on 7 January 2013.

34.  The Petition being stayed would be revived if the present action concludes.  The dismissal of the present claim not being a dismissal on the merits would not prevent the same matters being litigated in the Petition.  There is therefore no point in dismissing the plaintiff’s claims in this action when the same claims will be run again in the Winding-up Petition.

35.  I find that the interests of the administration of justice would, in the circumstances, be served by allowing the plaintiff to restore his claim.

36.  For the avoidance of doubt, in coming to this decision, I have not considered the merits of the parties’ respective claims, as it would not be helpful given the considerable dispute of facts between the parties’ respective cases.

Conditions

37.  I next consider what, if any, conditions should be imposed.

38.  The 2^nd defendant asks for security for costs in the sum of $1,000,000 as a condition for restoration of the plaintiff’s claim.

39.  Mr Cheung, whilst not opposing the imposition of conditions in principle, makes the point that there is insufficient evidence for the court to make such an order.

40.  I note that there had been an application from the 2^nd defendant for security for costs in the sum of $503,173 (or such other sum as the court thinks just) back in December 2012.  This application was dismissed by the Master in May 2013.  Mr Cheung, who was counsel for the plaintiff acting on that application, informed me that the reason for dismissal was that the 2^nd defendant was in effect the claimant in the action and so should not have security for costs of his claim.

41.  Whether Mr Cheung’s recollection of the Master’s reasons is correct does not greatly affect my decision, since there has been much water under the bridge in the interim.  I take into account:

(1)   the continued delay caused by the plaintiff’s intentional and contumelious default;

(2)   that the plaintiff is resident in Canada, and to this date has not disclosed on oath his present address;

(3)   that according to the 2^nd defendant, he himself had already spent $400,000 to $500,000 in costs prior to acting in person and that it is his intention to retain legal representation if the case is revived;

(4)   security would be provided by payment into court and if more is paid into court than the 2^nd defendant is finally entitled to, the plaintiff would be refunded the balance;

(5)   in the plaintiff’s 3^rd affirmation in opposition to the application for security for costs, the plaintiff has not provided any evidence that he would not have the means to put up such security and thus his claim would be stifled; and

(6)   the proceedings have already progressed to exchange of witness statements.

I consider it just that in the circumstances, the plaintiff be required as a condition of restoration of his claim to provide security for costs in the sum of $800,000 by paying the said sum into court.  This sum is to be paid into court within 28 days, although I will grant the plaintiff liberty to apply for an extension of time if good reasons are shown, and I stress that in view of the plaintiff’s previous delay and the half-hearted attempt to justify the delay, the evidence should be complete and compelling if any further delay is sought to be justified.

42.  I also make it a condition of the restoration that the plaintiff provide his current residential address to be confirmed by affirmation supported by sufficient evidence such as utility bills, bank statements etc within 14 days.

Conclusion

43.  I make an order that:

(1)   the plaintiff have leave to file his Notice of Appeal herein out of time;

(2)   the plaintiff pay the sum of $800,000 into court within 28 days from the date of handing down of this judgment as security for the 2^nd defendant’s costs of this action;

(3)   the plaintiff within 14 days of date of handing down of this judgment, the plaintiff file and serve an affirmation disclosing his present residential address;

(4)   on fulfillment of the above (2) and (3), the plaintiff’s claim be restored;

(5)   there be liberty to apply as to the time for fulfillment of the condition (2) above; and

(6)   costs of and incidental to this application be to the 2^nd defendant, to be taxed and paid forthwith.