ARCH CAPITAL LTD AND ANOTHER v. NEO TELEMEDIA LTD

HCA 1281/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1281 of 2015

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REASONS FOR DECISION

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Introduction

1.  On 29 July 2016, I dismissed the following summonses issued by Messrs Fan Wong & Tso on behalf of the defendant:

(1)  on 7 July 2016:

(a)  for leave to the defendant to adduce the Affirmation of Cheung Sing Tai dated 25 June 2014 as evidence on the defendant’s appeal to a judge in chambers against the Order of Master Leong dated 13 June 2016; and

(b)  execution of Master Leong’s Order be stayed pending determination of the appeal; and

(2)  on 26 July 2016 for leave to the defendant to amend the summons filed on 7 July 2016 to add the Affirmation of Choi Pui Wah dated 26 July 2016 as evidence on the defendant’s appeal

with costs on indemnity basis, summarily assessed by me at $130,000 to be paid by the defendant to the plaintiffs forthwith.

2.  I said written reasons for my Decision would be handed down in due course which I now do.

3.  On 6 January 2016, the parties settled this action by a Tomlin Order staying all further proceedings except for the purpose of carrying out the terms set out in the Schedule.

4.  On the defendant’s default, the plaintiffs issued a summons on 26 May 2016, returnable on 13 June 2016 asking for judgment in the sum of $144,000,000 with interest and costs. Significantly, the plaintiffs asked for judgment, not directions.  The estimated length of hearing was three minutes.

5.  The defendant had 18 days between the date of issue of the plaintiffs’ summons and its return date to file affidavit evidence in opposition but did not do so.

6.  The plaintiffs’ summons came before Master Leong on 13 June 2016.  Counsel for the defendant informed the Master that the defendant contested the plaintiffs’ summons “on the basis of the Settlement Agreement and sought leave on behalf of the Defendant to file evidence in opposition”.

7.  Master Leong ordered that judgment in the sum of $144,000,000 be entered in favour of the plaintiffs with interest and costs.

8.  The defendant filed notice of appeal 14 days later, ie on 27 June 2016.

9.  The defendant did not ask for leave to file evidence on the Settlement Agreement until 10 days later when it issued the 7 July 2016 summons.

10.  The defendant issued another summons on 26 July 2016, essentially to exhibit a fax dated 13 April 2016 from The Stock Exchange of Hong Kong (“HKSE”) to the defendant, marked for the attention of Cheung Sing Tai / Tse Kam Fai.

11.  The Settlement Agreement dated 12 April 2016 was made between the plaintiffs, the defendant and a company called “A R Evans Capital Limited” (“the Subscriber”).  The Subscriber agreed to subscribe for 375,875,000 new shares to be issued by the defendant, a company the shares of which are listed on the GEM Board of HKSE.  The new shares were to be sold and the proceeds were to be used to pay off the plaintiffs.

12.  On the same date as Settlement Agreement, the Subscriber entered into the Subscription Agreement with the defendant.  The plaintiffs were not a party to the Subscription Agreement.  Clause 6 of the Subscription Agreement provided that:

“6. CONDITION

6.1 Completion is conditional upon the Listing Committee of the Stock Exchange granting listing of and permission to deal in, the Subscription Shares.

6.2 If the Condition is not fulfilled by 19 April 2016 (or such other day as the parties may agree), the rights and obligations of the Subscriber and the Company in respect of the Subscription shall forthwith terminate and cease to have any effect.”

The date “19 April 2016” was amended by clause 3.1 of the Supplemental Agreement dated 28 April 2016 to “13 May 2016”. The plaintiffs were not a party to the Supplemental Agreement.

13.  What the defendant did not tell the court was that it published an Announcement entitled “Expiry of Long Stop Date” and dated 16 May 2016 announcing that “the Share Subscription has lapsed”.  This Announcement was clearly relevant to the arguments which the defendant sought to advance at the appeal.  It is one thing to acknowledge the fact of the lapse of the Share Subscription and argue the defendant’s case.  It is another to ignore the fact altogether.

Receiving further evidence

14.  Order 58, rule 1(5) of the Rules of the High Court (Cap 4A) (“RHC”) provides that:

“No further evidence (other than evidence as to matters which have occurred after the date on which the judgment, order or decision was given or made) may be received on the hearing of an appeal under this rule except on special grounds.”

15.  The phrase “special grounds” is the same expression as in Order 59, rule 10(2) of the RHC and requires the same conditions laid down in Ladd v Marshall [1954] 1 WLR 1489 to be satisfied.  The first condition is that the evidence could not have been obtained with reasonable diligence for the hearing below.  See Hong Kong Civil Procedure 2016 at §58/1/3.

16.  Plainly affidavit evidence producing a copy of the Settlement Agreement could have easily been obtained at the hearing below. The defendant and its solicitors and counsel felt able to treat the hearing as a “call over” and chose not to put in affidavit evidence.  That was plainly misconceived.  As I said earlier, the summons asked for judgment, not directions.  More importantly, the first condition is whether the evidence “could have been obtained with reasonable diligence for the hearing below” (emphasis added).  The answer is plainly in the affirmative.  The defendant failed to satisfy the first condition.  I declined to give leave to receive the evidence referred to in the defendant’s two summonses.

Stay of execution pending appeal

17.  The court does not make a practice of depriving a successful litigant of the fruits of his litigation, and locking up funds to which he is prima facie entitled, pending an appeal.  The most important consideration is whether there are strong grounds for the proposed appeal.  The hurdle is higher than that of the chances of success for considering whether leave to appeal should be granted.  See Hong Kong Civil Procedure 2016 at §59/13/1.

18.  The defendant did not argue that there were strong grounds for the proposed appeal.  What Cheung Sing Tai, the person who published the Announcement dated 16 May 2016 on behalf of the defendant, said in §17 of his Affirmation dated 24 June 2016 was that:

“Stay of execution

17.  The Plaintiffs are both companies incorporated in the British Virgin Islands (‘BVI’) with limited liability.  From information available in the public domain, it does not appear that the Plaintiffs have significant assets in Hong Kong.  I verily believe that if the sum of HK$144,000,000 is paid to the Plaintiffs, the Defendant will face serious difficulties in recovering the same even if it succeeds on appeal, and the appeal will likely thereby be rendered nugatory.”

19.  The allegation of “information available in the public domain” is conspicuous in the absence of particulars.  More importantly, there is no reason, and none has been alleged, why the plaintiffs should put information about its assets in Hong Kong in the public domain.  I attach no weight to §17.  There were no grounds for a stay pending appeal.  I dismissed the defendant’s application for a stay.

Indemnity costs

20.  The defendant’s summonses were wholly unmeritorious and had no prospects of success and that was why I dismissed both summonses after Mr Derek J Y Chan had concluded his submission.  Moreover, pretending that the Announcement dated 16 May 2016 did not exist did not commend itself to me.  I ordered costs on indemnity basis.