WONG KAR GEE MIMI v. APPLIED DEVELOPMENT HOLDINGS LTD

HCA 424/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO. 424 OF 2011

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DECISION
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1.  The claim of the plaintiff (“Wong”) was provisionally struck out pursuant to O.25, r.1C of the Rules of the High Court (“RHC”). Upon her application, the master restored her claim. The defendant (“ADHL”) now appeals.

BACKGROUND

2.  There is bit of litigation history between the parties that needs mention.

3.  ADHL was the holding company of the family businesses and assets of Wong and her ex-husband Hung Kin Sang Raymond (“Hung”).  The foundation of the company was dated back in the 1970s, and it went public and became listed in Hong Kong in 1980s.  Wong was an executive director of the company; and became the chairman of the board of directors in 2005.  Hung was the managing director.

4.  The legal battle arising out of the dispute between the couple began way back in 1999.  In 2001, the coupled entered into a deed of divorce.  In 2010, matrimonial proceedings were commenced with Wong as the petitioner and Hung as the respondent (“HCMC No 9/2010”).

5.  In June 2010, Wong was removed from the board and re-designated as non-executive director.  She left such post in January 2011.  In the same month, she filed her claim in the Labour Tribunal for alleged arrears of salaries and other payments (LBTC 326/2011).  The claim was transferred here and became part of the present action.

6.  It is Wong’s case that as director and subsequently non-executive director of ADHL, she was entitled to contractual remuneration, which included salaries, allowance, accommodation at Units 1A and 1B (“the Property”), No 3 Severn Villa, Severn Road, Hong Kong with reimbursement of management related expenses.  She claims against ADHL for, amongst other things, breach of such employment contract.

7.  The other aftermath of Wong’s removal from the company was her eviction from the Property.  For that, Wong commenced proceedings seeking declaration of her interest and right to reside in the Property (“HCMP 243/2011”) whereas ADHL[1], as the owner, commenced proceedings to recover possession of Property from her (“HCMP 552/2011”).

8.  Wong was legally represented in all the above legal proceedings.

9.  In August 2011, judgment in HCMC 9/2010 was handed down.  It went on appeal.

10.  In the present case, pleadings were closed in September 2011.  Directions were first given by consent in January 2012; and pursuant to which, witness statements had been filed by the parties.  The first case management conference (“CMC”) was held in September 2012, when leave to amend the statement of claim was given, and the following CMC was fixed to be held on 20 February 2013.

11.  When HCMPs 243/2011 and 522/2011 came on for trial, Wong conceded to judgment with costs and therefore had to vacate from the Property.

12.  Soon Wong and her then solicitors fell into dispute between themselves.  The latter ceased to act for her, and commenced action to claim against her for outstanding legal fees in millions (“HCA 150/2013”).

13.  In early January 2013, Wong became acting in person in all the litigations including the present action.  But she soon engaged another firm of solicitors, her present solicitors, to act for her.

14.  On 5 and 20 February 2013, Wong, through her present solicitors, filed her lists of objections for the taxation proceedings in HCMPs 243/2011 and 522/2011.  On 23 February 2013, Wong, through her present solicitors, also applied to stay HCA 150/2013 pending taxation of the legal fees being claimed against her (“HCMP 361/2013”).

15.  When the CMC in the present case was held on 20 February 2013, Wong was on record still acting in person, though she was represented by her present solicitors in her other ongoing actions.  She was absent from the CMC.  Hence the Registrar’s provisional striking out of her claim pursuant to O.25, r.1C.

16.  By summons filed on 20 May 2013, Wong applied to restore her claim but conceding costs to ADHL.

17.  After hearing, Master Lo handed down her decision on 26 February 2014 restoring the claim with no condition.  She ordered Wong to pay the costs of her application up to 2 weeks after the service of her last affirmation, while ADHL should pay her costs thereafter.  Costs should be taxed, if not agreed, with certificate for counsel.

18.  On 11 March 2014, ADHL filed its notice of appeal against the master’s decision.

THE PRINCIPLE

19.  The Registrar provisionally struck out the claim pursuant to O.25, r.1C of the RHC, which reads:

“(1) Where the plaintiff does not appear at the case management conference or pre-trial review, the Court shall provisionally strike out the plaintiff’s claim.

(2) [Not applicable to the present case]

(3) Where the Court has provisionally struck out a claim……under paragraph (1)……, the plaintiff……may, before expiry of 3 months from the date of the case management conference or pre-trial review, as the case may be, apply to the Court for restoration of the claim……

(4) The Court may restore the claim……subject to such conditions as it thinks fit or refuse to restore it.

(5) The Court shall not restore the claim or counterclaim unless good reasons have been shown to the satisfaction of the Court.

(6) ……”

20.  The first application of this new court rule came before Registrar Au-Yeung (as she then was) in World Chinese Business Investment Foundation Ltd & Ors v Shine Rainbow Marketing Ltd [2010] 2 HKC 294, who laid down (at §8) a 3-stage test:

(1) whether the plaintiff meets the threshold of showing ‘good reasons’ for absence from the CMC or pre-trial review;

(2) whether as a matter of discretion, the claim should be restored;

(3) if yes, whether conditions should be imposed.

21.  The fact that it was the first application of its kind before the court apparently had some bearing on how the court approached the matter in World Chinese Business Investment Foundation Ltd.  Insofar as stage (1) was concerned, the learned Registrar was prepared to give the benefit of the doubt that the practitioners might not be familiar with the new rule then (see §16).  Insofar as stage (2) was concerned, she decided to err on the side of caution instead of dismissing a good cause of action for pure technical breach or inadvertence (see §21).

22.  Neither Mr Ngai for Wong nor Mr McLeish for ADHL drew my attention to a second case of this kind since then.  It is for me to consider how the principle should be applied now.  In my view, it remains that each case turns on its own circumstances.

THE APPLICATION

23.  I am revisiting the 3-stage consideration of Wong’s application by way of rehearing.

Good reasons

24.  Wong explains that her absence from the CMC on 20 February 2013 was an inadvertent mistake.

25.  There is no dispute that upon cessation of legal representation, Wong’s then solicitors sent her a letter dated 5 January 2013 enclosing their bill of costs. They specifically advised her to comply with the outstanding directions set out in the Registrar’s order during the first CMC dated 12 September 2012, and enclosed a copy of that order.  As mentioned, one of the terms of the order was the following CMC to be held on 23 February 2013.

26.  That her then solicitors did not specifically remind her of the date of the CMC per se would not be a good reason, when she had a copy of the order.  Her affirmations and witness statement are in English, which she verified without interpretation.  Had she read the order, she would have known.

27.  Wong attributes her inadvertence to her age, which was 65, and health problems including sleep apnea, ear infection and high blood pressure.  Medical evidence is provided.  She also refers to the various ongoing legal battles, which had been causing her extensive pressure, and leaving her physically and emotionally exhausted.  In the circumstances, the need to attend the CMC slipped her attention.

28.  Much is said about the truth of her explanation.  Reference is made to her interview by a newspaper just 2 days prior to the CMC, and her trip to the United States in December 2012 and January 2013.  Wong also attended a massive jewellery and antique valuation and meeting on 20 February 2013.  ADHL suggests that this was a deliberate delaying tactic of Wong.

29.  According to Wong, she called ADHL’s solicitors in March 2013 to find out the progress of the present action, only to be told that her claim had been struck out for her absence from hearing.  There is no dispute about that.  It should be noted that somehow the order of the Registrar dated 20 February 2013 was not filed until 30 April 2013, and it also on that day when ADHL’s solicitors sent her a copy of that order.  Wong then instructed her present solicitors, who, as mentioned, have been acting for her in other proceedings, to apply for the restoration of her claim.

30.  The objective circumstances impress me that Wong’s inadvertence did not originate from her disregard of the proceedings.  Notwithstanding the reference to all the legal proceedings concerning Wong, including the present action, there is no suggestion that Wong had a record of flouting court directions or orders in respect of conduct of proceedings until the present episode[2].  Quite on the contrary, even ADHL finds it necessary to emphasize the litigious character of Wong in the various legal proceedings.  She has been relentlessly pursuing all the legal battles, including those involving ADHL.

31.  I do not see what it is that Wong could possibly gain from somehow disregarding the CMC on 20 February 2013.  The suggestion that it was her delaying tactic, whether knowingly or anyway out of her choice, does not seem to tallying with the objective circumstances.  The application for restoration of the claim was taken out only on 20 May 2013.  But this is relatively immaterial, so long as this was, and indeed this was, within the 3-month period provided for under r.1C(3).

32.  On balance, I am prepared to accept Wong’s admission of advertent mistake in failing to turn up at the CMC on 20 February 2013.

Discretion

33.  ADHL suggests that it has incurred substantial costs and time in defending the present action, and it is unlikely that it could recover its costs in the reasonable future, if Wong is allowed to resume proceedings in this action. This, in my view, is no more than the risk of litigation, which would have been the same, had there not been this episode arising out of the provisional striking out.  The argument that ADHL ought not to be subject to such risk would have worked, only if the claim had been liable to be struck out on one of the grounds recognised by the law instead of O.25, r.1C.

34.  Behind O.25, r.1C is the objective of case management.  By the time when the claim was provisionally struck out, witness statements of the parties had been filed by the end of May 2012.  Wong was granted leave to amend the statement of claim in the first CMC.  According to its listing questionnaire in February 2013, consequential upon the amendment, ADHL contemplated amendments to its pleading and supplemental witness statements.  Further, ADHL indicated its intention, and in fact readiness, to apply to transfer its District Court Action No DCCJ 445/2012 to be consolidated with the present action.  The case was thus not ready for setting down.

35.  Against the above background, I do not see that resumption and further conduct of proceedings in the present case from this point[3] is likely to cause ADHL prejudice that cannot be compensated by way of costs.

36.  The remaining relevant factor that could shed different light on the consideration, including that of whether ADHL should continue to be subject to the risk of litigation, is the merit of the claim.  The question is whether the claim has a reasonable prospect of success: see World Chinese Business Investment Foundation Ltd (above) at §25.

37.  In respect of the period between 2005 and 2010 when Wong was the executive director and chairman of the board of ADHL, she claims on the basis of the alleged employment contract for:

(1) Unpaid balance of her salaries, allowances and benefits plus agreed interest or alternatively statutory interest under section 25A of the Employment Ordinance, Cap 57 (“EO”);

(2) unpaid bonus;

(3) payment in lieu of notice of her termination; and

(4) long service payment under sections 31R and 31V of the EO.

38.  Items (1), (2) and (3) above add up to a sum in excess of HK$2,000,000, while (4) above is quantified at HK$390,000.

39.  In respect of the period between 2010 and 2011 when Wong was the non-executive director, she claims unpaid balance of fees as such in the sum of HK$60,000.

40.  In connection with the Property, Wong claims reimbursement of management related expenses pursuant to the alleged employment contract.  She also claims reimbursement of similar expenses pursuant to a subsequent alleged oral agreement between the parties. The total sum just exceeds HK$313,000.

41.  The appointment of Wong to the board of ADHL is not disputed but the alleged employment contract is denied.  In support, Wong relies on contemporaneous documents including the annual reports of ADHL and her salaries tax documents.  The former were said to consistently record her remuneration as such, while the latter was evidence of her salaries tax liabilities as a result.

42.  As to the alleged agreed interest, Wong relies on a contemporaneous document, namely an email dated 25 September 2008.  The existence and subject matter of that email are not disputed but it is denied that there was a concluded agreement between the parties in this respect approved by the board of ADHL.

43.  Mr McLeish apparently does not contest that the above factual dispute could not be resolved at this stage.  What he submits is that even assuming that the court is minded to restore the claim, specific parts of the claim nevertheless are so bad that they ought to be excluded from the ambit of any order for restoration.

44.  Mr Ngai questions whether O.25, r.1C(4) allows the court to restore part of a claim or counterclaim.  As I read it, it neither provides for nor inhibits that.

45.  A default judgment may be set aside or varied in part (as the case may be) under O.13, r.9 and O.19, r.9, when the court is satisfied that the extent of its offensive parts under O.18, r.19 or the inherent jurisdiction of the court.  What happens if the court in considering an application under O.25, r.1C(4) is satisfied that part of the claim not only lacks reasonable prospect of success but is clearly without merits?  The defendant cannot be expected to take out an application to strike out, because there is no claim unless and until it is restored upon hearing the plaintiff’s application.

46.  Having said that, I would be surprised that the court’s hands are tied in such a situation. As the court would inevitably consider the merits of the claim in an application under O.25, r.1C(4), the court is quite entitled to consider whether part of the claim not only lacks reasonable prospect of success but is actually hopeless.  In clear and obvious case, the conclusion may well be that such part of the claim would have been liable to be struck out, had there not been the episode under O.25, r.1C.  This is a reflection of the court’s jurisdiction to order any part of the pleaded claim to be struck out at any stage of the proceedings by its own motion under O.18, r.19 and its inherent jurisdiction.

47.  This is also in line with the underlying objective of the new rules under O.1A, r.1. What needs to be ensured is that the plaintiff is prepared when heard, in line with the objectives behind the safeguard under O.1B, r.2.  As far as the present case is concerned, there is no complaint that Wong is not prepared to deal with the arguments advanced on behalf of ADHL in respect of the specific parts of the claim in question.

48.  Mr McLeish argues that the following specific claims are hopelessly bad:

(1) claim for damages for alleged wrongful termination of the employment contract[4];

(2) claim for long service payment[5]; and

(3) claim for reimbursement of the management related expenses at Severn Villa[6].

Wrongful termination and long service payment

49.  Assuming for the present purpose that Wong was its employee as alleged, ADHL contends that it was nevertheless entitled to dismiss her summarily for misconduct pursuant to section 9 of the EO or at common law.  Hence no ground for the claim for damages for wrongful termination or long service payment.

50.  Section 9(1) of the EO provides that an employer may terminate an employment contract without notice or payment in lieu, if:

(1) the employee in relation to his employment

(a) wilfully disobeys a lawful and reasonable order;

(b) misconducts himself such conduct being inconsistent with the due and faithful discharge of his duties;

(c) is guilty of fraud or dishonesty;

(d) is habitually neglectful in his duties; or

(2) on any other ground on which he would be entitled to terminate the contract without notice at common law.

51.  Section 31S(1) of the EO provides that in case of dismissal pursuant to section 9(1) above, the employee shall not be entitled to long service payment.

52.  ADHL alleges the following misconduct on the part of Wong:

(1) withholding from ADHL the proceeds of the sale of its property, namely a fine blue glazed vase of the Yangzheng period; and

(2) abuse of position as chairman and executive direction of ADHL by writing 2 letters purportedly for and on its behalf in support of visa applications by Wong’s dancing partner, who is a PRC passport holder, to enable him to accompany her on private trips to the United States and Japan.

53.  As to the sale of the vase, Mr McLeish acknowledges that Wong set out her explanation in detail in her pleading[7] and statement.  As to the so-called visa letters, the fact that Wong did so is apparently not in dispute.  But Mr Ngai submits that whether that was considered by ADHL to be misconduct and whether that objectively sufficed to justify summary dismissal would be arguable.

54.  Summary dismissal is a strong and extreme measure, to be justified only in very exceptional circumstances.  Misconduct suffices to that extent only if it amounts to fundamental breach of the employment contract.  In other words, the conduct has to be so serious that it goes to the root of the contract so as to indicate the lack of intention and readiness to be bound by the terms of the contract.  Whether the conduct complained about amounts to such misconduct is a question of fact, which depends the circumstances of each case, the nature of the employment, the nature of the responsibilities and of the tasks being performed, the standards and norms of industry or profession within which the employment took place, the terms of the particular employment and the social conditions prevailing at the time.  To this extent, previous case law can give some guidance but is of limited precedent value.  The onus is on the employer to justify summary dismissal: see Employment Law and Practice in Hong Kong at §§6.101-6.103.

55.  Mr McLeish relies on Sinclair v Neighbour [1967] 2 QB 279, but the misconduct and circumstances there materially differed from what ADHL is complaining about in the present case.  Caution should be exercised in its reliance as a precedent, as the principle summarised above advises.  That the question has eventually to be answered as a matter of fact and that there is room for argument in the circumstances of the present case cause me to refrain from coming to a conclusion without the opportunity of considering the evidence of the witnesses being tested in court.

56.  But for this episode because of O.25, r.1C, these 2 specific claims, in my view, would not have clearly and obvious been liable to be struck out.

Reimbursement of management related expenses re Severn Villa

57.  At all material times, Severn Villa Limited (“SVL”), a wholly owned subsidiary of ADHL, owned the Property (Units 1A and 1B) where Wong had resided in since 2003.  SVL also owned Units 2B and 3B (and roof), certain gardens and parking spaces in Severn Villa.

58.  Wong’s alleged entitlement to reimbursement of the management related expenses at Severn Villa had 2 contractual sources.  First, there was the alleged employment contract, which took effect in 2005, whereby she was allegedly promised reimbursement of 50% of the management related expenses that she paid. As pleaded, those relate to the Property where she resided in[8].  Second, there was the alleged subsequent oral agreement between her and Hung reached through a member of ADHL staff in 2008.  As pleaded, it was agreed that she would pay for the domestic helper and security guard employed to serve Severn Villa, and would be reimbursed of the same[9]. Those were therefore expenses for the entire Severn Villa.

59.  Mr McLeish submits that the contention in respect of how the alleged oral agreement in 2008 was reached is incredible.  He also submits that the claim is confusing.  SVL should be liable to contribute its share of the management expenses charged by the incorporated owners of Severn Villa on a pro-rata basis in accordance with the properties SVL owned at the material times[10].  It follows that such liability should not be that to pay the sum paid by Wong for the management of Severn Villa, which served all the owners.  That such payment by Wong has been pleaded to be in discharge of SVL’s liability in this respect[11] is therefore difficult to follow.  In principle, this is understandable.

60.  However Wong did identify the domestic helper and security guard that were employed and paid by her.  According to her, the domestic helper’s engagement was agreed upon and approved by ADHL and/or SVL, through Hung and Eric Ng, as well as the incorporated owners[12]. Allegedly SVL had also reimbursed her of those expenses and then charged them to the incorporated owners in statements signed and approved by Hung for and on behalf of SVL prior to the 2008 agreement[13]. As to the 2008 agreement, she also identified the staff of ADHL through whom she allegedly reached the agreement with Hung for ADHL.

61.  The circumstances were such that the question is not simply whether what Wong alleges should happen as a matter of the proper liability of SVL in contributing towards the management related expenses.  In this respect, I also notice the reference to what appears to be the related dispute in respect of the management of Severn Villa in the Lands Tribunal (LDBM 223/2008)[14].  Part of the Tribunal’s ruling, to the extent that it was recited, was apparently based on what should and should not be the case of lawful and proper management of Severn Villa.  It does not per se negative the existence of the arrangement alleged by Wong, which, for her purpose, will be what she needs to prove as a matter of fact.

62.  Further, even assuming the alleged 2008 agreement for the full reimbursement is rejected, the alleged arrangement remains there to be investigated at the trial for the purpose of the implied employment contract whereby Wong was allegedly reimbursed 50% of the management related expenses that she paid.  Whether there was the arrangement and the agreement between the parties will be a matter of fact, irrespective of whether the arrangement was wrong and improper from the perspective of the management of Severn Villa or whether the 50% of such expenses properly represented what were related to the Property.

63.  In the circumstances, I am not minded to deny the chance of these assertions at this stage as if the same were bound to fail in any event.

Condition

64.  It is suggested that the exclusion of part of the claim may be imposed as condition of the restoration of the claim.  I have reservation about mixing up the two, because conceptually, this should be the condition on which the order is granted, so that in default, the order does not take effect and the claim is not restored.  But in court, Mr McLeish confirmed that his client is not seeking conditional restoration of the claim.

Conclusion

65.  For the above reasons, I maintain the master’s order.

66.  This was Wong’s application for indulgence of the court.  ADHL was quite entitled to take issue as to whether the court should exercise discretion in her favour in all the circumstances.  Whether ADHL should be faced with adverse costs consequence depends on whether its resistance was unreasonable.  However Mr McLeish confirmed that in the event the master’s order is upheld, he would have no argument on the costs order below.  This is the event of this appeal, and I therefore need say no more on this.

ORDER

67.  The appeal is dismissed.

68.  ADHL shall pay Wong her costs of and occasioned by this appeal, to be taxed, if not agreed, with certificate for counsel.  In the absence of application in 14 days for variation, this costs order shall become absolute.

69.  I thank counsel for their assistance.