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

CACV 250/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 250 OF 2010

(ON APPEAL FROM DCCJ NO. 1569 OF 2008)

________________________

________________________

REASONS FOR DECISION

________________________

Introduction

1. On 22 March 2012, upon the plaintiff’s application, I ordered the defendant to provide security for the plaintiff’s costs in the appeal in the following terms (“22-3-2012 Order”):

(1)  The defendant shall on or before 21 May 2012 provide security for the plaintiff’s costs in the appeal in the amount of $50,000 either by way of payment into court or by a bank guarantee to the satisfaction of the plaintiff, or failing agreement, as approved by the Registrar, High Court.

(2)  If the security is provided by way of a bank guarantee,

(a)the defendant shall on or before 26 April 2012 provide the draft to the plaintiff’s solicitors for approval;

(b) the plaintiff’s solicitors shall on or before 3 May 2012 provide to the defendant their comments (if any); and

(c) where there is no agreement on the terms of the bank guarantee, the defendant shall on or before 10 May 2012 submit the draft to the Registrar for approval.

(3)  Pending the provision of the security, all further proceedings in the appeal are stayed.

(4)  In the event the defendant fails to provide the security by 21 May 2012, the appeal shall, without further order, stand dismissed with costs to the plaintiff to be taxed if not agreed.

2. The defendant did not provide the security for costs by 21 May 2012.  Pursuant to paragraph 4 of the 22-3-2012 Order, the defendant’s appeal stood dismissed with costs to the plaintiff.

3. On 22 June 2012, the defendant issued a summons applying for:

(1)  Extension of time to 30 July 2012 to comply with paragraph 1 of the 22-3-2012 Order;

(2)  Stay of execution of paragraph 4 of the 22-3-2012 Order;

(3)  Variation and discharge of paragraphs 19 and 20 of the Judgment dated 12 May 2010; and

(4)  “The relief that may be awarded to the appellant as the Court of Appeal considered applicable. Such as leave to adduce the fresh evidence.”

4. At the hearing of the summons, I reinstated the appeal on two conditions. My reasons for the decision appear below.

The defendant’s summons

5. One day after the deadline for complying with the order for security for costs (i.e. 22 May 2012), the defendant wrote to the court requesting permission to pay $50,000 into court notwithstanding that the time for so doing had expired.  In response, the court wrote to the parties enquiring whether the plaintiff agreed to the defendant’s request, failing which, the defendant was reminded that it would have to make a formal application by way of an inter-partes application.  The plaintiff did not agree to the defendant’s request.  Accordingly, the court wrote to the defendant on 24 May 2012 pointing out that it had to make an application.  The defendant did not issue any application.  By letter dated 14 June 2012, the court informed the parties that the hearing date for the defendant’s appeal (8 and 9 November 2012) would be vacated since pursuant to paragraph 4 of the 22-3-2012 Order, the defendant’s appeal stood dismissed with costs to the plaintiff.  The defendant wrote on 15 June 2012 indicating that “we are in the process of issuing the summons”.  On 18 June 2012, I directed that unless by 4:00 pm on 22 June 2012 the defendant issued the summons to seek rectification of the position, the hearing dates shall be vacated. 

6. On 22 June 2012, the defendant issued the present summons and filed a supporting affirmation.  The bulk of the contents of the affirmation and seven of the eight exhibits, however, are to advance the defendant arguments for the substantive appeal.  Then on 16 July 2012, the defendant lodged with the court a 12-page written submission.  On 26 July 2012, the plaintiff’s solicitors lodged a written submission in opposition to the application.  On the same day, the defendant lodged an amended submission that ran up to 16 pages together annexure that include transcripts of the District Court trial, all of which were not exhibits to the supporting affirmation.  Then on 30 July 2012, one day before the hearing of the summons, the defendant, by way of supplementary submission, lodged a chronology on the application for security for costs, accompanied by a hearing bundle containing documents that are not part of the evidence in support of the present application. 

7. It appears from the written submissions of Mr Lau, who was given leave to represent the defendant, that the defendant was seeking a wide range of relief.  The defendant sought, on the one hand, an extension of time to provide security for costs and, on the other hand, to set aside the 22-3-2012 Order for what was said to be a false statement made by Mr Shaw in an earlier affirmation filed in support of the plaintiff’s application for security against costs.  In addition, it applied for an order overturning the Judgment of the trial judge and further for leave to adduce new evidence. 

8. I had in my Reasons for Decision handed down on 30 March 2012, dealing with the plaintiff’s application to revoke the leave given to Mr Lau to represent the defendant (paragraphs 30-35), commented on Mr Lau’s approach and handling of the appeal and pointed out the importance of a disciplined approach to the conduct of litigation and a party’s obligation to abide by court directions and orders even though they are not in his favour.  Regrettably, none of these is heeded. 

9. There is, among other things, no justification for the wide ranging relief sought when the defendant’s appeal was on record dismissed and it was coming to the court for relief from the sanction.  The situation is aggravated by the fact that it is only in the written submissions that the defendant made plain that by paragraph 2 of the summons, it was seeking to set aside the 22-3-2012 Order and that by paragraph 4 of the summons, it is applying for leave to adduce fresh evidence.  The voluminous papers that the defendant put before the court shortly before the hearing serves to further aggravate the unsatisfactory state of affairs. 

10. In the circumstances, I indicated to Mr Lau at the outset of the hearing that the hearing should only focus on whether relief from the sanction imposed in paragraph 4 of the 22-3-2012 Order should be granted; and the other applications would not be considered.  Neither would I consider documents or matters that were not properly in evidence or submissions that are irrelevant to the subject matter of the hearing.

Relief from sanction

11. I turn to the issue of whether relief from the sanction imposed in paragraph 4 of the 22-3-2012 Order.  Order 2 rule 4 of the Rules of the High Court, Cap.4A, provides:

“Where a party has failed to comply with a rule or court order, any sanction for failure to comply imposed by the rule or court order has effect unless the party in default applies to the Court for and obtains relief from the sanction within 14 days of the failure.”

12. Hence, upon the defendant failing to provide security for costs by 21 May 2012 as ordered by paragraph 1of the 22-3-3012 Order, the sanction imposed by paragraph 4 of the same Order takes effect because the defendant had not applied for and obtained relief from the sanction within 14 days from 21 May 2012.  In this regard, the defendant’s summons was inadequate in that it merely asked for an extension of time to comply with paragraph 1 of the 22-3-2012 Order when it should have applied, in addition, for an order reinstating the appeal, being a relief from the sanction imposed by paragraph 4 of the 22-3-2012 Order.  The shortcoming in the defendant’s summons is a matter that is relevant to the issue of costs.

13. As to how the court should exercise its discretion, Order 2 rule 5(1) of the Rules of the High Court provides:

“(1) On an application for relief from any sanction imposed for a failure to comply with any rule or court order, the Court shall consider all the circumstances including-

(a) the interests of the administration of justice;

(b) whether the application for relief has been made promptly;

(c) whether the failure to comply was intentional;

(d) whether there is a good explanation for the failure to comply;

(e) the extent to which the party in default has complied with other rules and court orders;

(f) whether the failure to comply was caused by the party in default or his legal representative;

(g) in the case where the party in default is not legally represented, whether he was unaware of the rule or court order, or if he was aware of it, whether he was able to comply with it without legal assistance;

(h) whether the trial date or the likely trial date can still be met if relief is granted;

(i) the effect which the failure to comply had on each party; and

(j) the effect which the granting of relief would have on each party.”

Order 2 rule 5(2) further requires the application to be supported by evidence. Ultimately, what the court has to consider is whether, in all the circumstances of the case, it is just to make an order granting relief from the consequences that would otherwise flow.

14. In the present case, the defendant’s reason for failing to comply with the order is that although it had eventually obtained from its contributors $50,000, it had decided to provide a bank guarantee instead of making payment into court because in its previous dealing with the plaintiff, letters of credit were involved.  However, owing to financial constraints, including a pending winding-up petition presented by the plaintiff, the defendant had met with difficulties in procuring a bank guarantee.  It would also appear from the emails exhibited to Mr Lau’s affirmation that he had attempted to prepare the draft of the bank guarantee.  Not surprisingly, the draft he came up with was not in line with the usual bank guarantee and did not meet the agreement of the plaintiff.

15. Mr Shaw submitted that these do not amount to good explanations for the non-compliance.  I agree.  Plainly, the defendant, with the money from its shareholder(s), could have simply made a payment into court.  The proffered reason for using a bank guarantee and for insisting in this course, even after it encountered difficulties in procuring the bank(s) to issue it, is unacceptable.

16. That said, however, I am not prepared to conclude on the materials before the court that the defendant intentionally flouts the Order.  I am also conscious that the consequence for the non-compliance is drastic.  On the other hand, while there would be prejudice to the plaintiff if relief were to be granted, it is not irreparable and could be compensated by an appropriate costs order.  It is further to be noted that the hearing of the appeal is still some three months away.

17. In all the circumstances of the case, I am of the view that it is just to grant the defendant relief from the sanction.  I am further of the view that the relief should be granted on conditions.

Conditions for the grant of relief

18. Mr Shaw submitted that the conditions should consist of: (i) an order directing the defendant to provide the security for costs within a short period of time; (ii) an order directing the defendant to pay within 14 days the plaintiff’s costs of and thrown away by the non-compliance; and (iii) an order compelling the defendant to appoint a legal representative to act for it in these appeal proceedings.

19. I accept (i) and (ii) are appropriate conditions to be imposed.  I however do not consider it is appropriate to impose (iii) as a condition.  The plaintiff had previously applied by summons to revoke the leave granted to Mr Lau to represent the defendant relying, among other grounds, on the unsuitability of Mr Lau to be the defendant’s representative.  For the reasons stated in the Reasons for Decision dated 30 March 2012 (paragraphs 23 to 35), I had refused the application.  Condition (iii) is in effect seeking to revoke the leave granted to Mr Lau to represent the defendant in these appeal proceedings.  Although the way in which Mr Lau conducted the present application is unsatisfactory, it does not amount to a material change of circumstance justifying re-opening the issue of the defendant’s representation.

20. Returning to the conditions to be imposed on granting relief from the sanction, since Mr Lau informed the court that he had brought with him the money for the security for costs, the defendant should comply with paragraph 1 of the 22-3-2012 Order by 4:00 pm on the day of the hearing by paying into court $50,000 as security for the costs of the plaintiff in the appeal. 

21. As for the plaintiff’s costs, it has two aspects.  The first is the costs of the application.  The plaintiff claimed: (i) 3.5 hours of Mr Shaw’s time in the work and preparation leading to the hearing; (ii) 2.5 hours of an assistant solicitor in perusing and considering the Chinese written submissions and documents forwarded by the defendant; and (iii) 1.75 hours that Mr Shaw spent on attending the hearing.  The hourly rate of Mr Shaw, who was admitted to practice in Hong Kong in 1988, is HK$4,000 and that of the assistant solicitor, who was newly admitted for one to two years, is $2,000.  The amount claimed is therefore HK$26,000 ($4,000 x (3.5+1.75) hr + $2,000 x 2.5 hr). The second aspect is the costs wasted or thrown away by the non-compliance of the 22-3-2012 Order.  As mentioned above, the plaintiff had petitioned for the winding up of the defendant.  By reason of the defendant’s appeal, the proceedings were ordered to be adjourned to the first Monday after the disposal of the appeal.  Consequently, the petition was restored for hearing upon the dismissal of the appeal under paragraph 4 of the 22-3-2012 Order.  When the defendant issued the present summons, the plaintiff’s solicitors had to write to the Court to vacate the hearing.  All these are costs wasted or thrown away by the non-compliance with the 22-3-2012 Order.  The plaintiff claimed $3,600, represented by (i) 0.5 hour of Mr Shaw’s time ($4,000 x 0.5 hr) ; and (ii) $1,600 being the Official Receiver’s costs. In total, the plaintiff’s costs as claimed is $29,600.

22. On the costs of the application, the involvement of the assistant solicitor was necessitated by the Chinese submissions and documents lodged by the defendant.  Given, however, the costs are assessed on party-and-party basis and that both Chinese and English are official languages, I am of the view that the plaintiff should only be allowed the fee of one fee earner (i.e. Mr Shaw’s fee and not that of the assistant solicitor).  Taking a broad brush approach, the plaintiff’s costs of the application is assessed at $20,000; and the plaintiff’s costs thrown away by the non-compliance with the 22-3-2012 Order is assessed at $3,500, making a total of $23,500. The defendant will have 30 days within which to make payment.

Paragraphs 2 to 4 of the summons

23. For completeness sake, I will say a few words about paragraphs 2 to 4 of the summons, on which I will make no order. 

24. On paragraph 2 of the summons, although it makes reference to paragraph 4 of the 22-3-2012 Order, what the defendant seeks is an order setting aside the security for costs order contained in paragraph 1 of the same order.  There are three reasons why this must fail. Firstly, the plaintiff’s application for security for costs had been heard and determined against the defendant.  The order had also been sealed and filed. There is no proper basis for re-opening the application.  Secondly, insofar as the defendant says that the order should be set aside because it was obtained by reason of a false statement, it is misconceived.  The defendant’s complaint stems from paragraph 4 of Mr Shaw’s affidavit filed on 16 January 2012, which reads:

“4.  On 16 November 2010 I wrote to Nikko making a demand for security for costs. That letter reminded Nikko that during the trial Mr Lau had informed the judge that Nikko was no longer doing business. Now produced and shown to me marked “GIS-2” is a copy of that letter. Nikko did not reply to that letter.  In other words, it neither denied Mr Lau had made that admission to the judge nor disputed that in November 2010 Nikko was no longer doing business.”  (emphasis added)

On a proper reading of the paragraph, what Mr Shaw was saying is that the defendant did not deny it was not doing business or that its representative, Mr Lau, had at the trial told the judge this fact.  The paragraph does not, as Mr Lau suggested, say that the defendant did not respond to the plaintiff’s demand for security for costs.  Thirdly, in any event, whether the defendant had or had not responded to the demand for security for costs has no bearing on whether it should be ordered to provide security for costs.  Still less can it amount to a ground for invalidating the order made on 22 March 2012. 

25. On paragraph 3 of the summons, the court cannot at this interlocutory stage decide on the merits of the appeal, let alone overturning the trial judge’s findings and decision.

26. Finally on paragraph 4 of the summons, it is only in the written submissions that Mr Lau said it was meant to be an application to adduce fresh evidence at the hearing.  Neither the summons nor the affirmation identifies the fresh evidence sought to be adduced.  Although the written submission made reference to Ladd v. Marshall, the affirmation contains nothing to demonstrate how the three requirements are met.  Neither do the written submissions make good the defendant’s case on this. 

Order

27. In conclusion, the order I made is as follows:

(A)  The defendant’s appeal is reinstated on the following conditions:

(1)  The defendant shall by 4:00 pm on 31 July 2012 comply with paragraph 1 of the Order dated 22 March 2012 by paying $50,000 into court as security for the costs of the plaintiff in the appeal; and

(2)  The defendant shall within 30 days from the date of the order (i.e. 31 July 2012) pay the plaintiff the costs of the summons and the costs thrown away by the non-compliance with the Order dated 22 March 2012, assessed at HK$ 23,500 on gross sum basis. 

(B)  For the avoidance of doubt, time shall run during the vacation.